Q1 2021 Western Midstream Partners LP Post-Earnings Interview With CEO
Earnings Chard, with Michael <unk>, CEO of Western midstream and thanks for joining us today, let's.
Let's start off with a question about winter storm Yuri can you breakdown on the $30 million of lost EBITDA from winter storm here as it relates to throughput or increased cost.
Sure the majority relates to the Delaware about half of that lost EBITDA is due to production declines associated with the period when when raws were down on during the winter storm and then about half of it relates to Opex, primarily in utilities are the other amount was related to the the blizzards that happened in the.
D. J basin. Shortly thereafter are there any long term effects from winter storm here no long term effects are in fact are we feel like our assets on our people performed extremely well during that period got our assets back on line at a very efficient manner and up to this point, we don't have any lasting effects on looking at your first quarter finance.
As a result, there was an increase in G&A, what does that relate to.
Sure. So G&A increased by about $7.8 million, a $6 9 million of that are really related to more one time oriented costs are related to employee vacation accruals and increased bonus related contributions on our under our employee savings plan have your producers assumptions around activity further.
During the year changed since you initially issued guidance not really so when we actually.
Spent a lot of time with our customers going back into the back half of 'twenty 'twenty. There was an indication that activity levels would pick up for 2021 at that time, they establish their budgets and for the most part of been pretty well in line with what expectations were at the time, what we actually saw was that the private producers were being a little bit more aggressive in terms of activity levels relative.
To the to the public producers and despite the improvement in commodity prices for the most part everyone has stayed relatively consistent with what those expectations were at the back half of 'twenty, which were the basis of our guidance that we put out at that time, what's the cadence of EBITDA for 2021 in light of the fact that we lost.
Some volumes in and had an impact of about $30 million of EBITDA.
We were actually expecting that there would be a decline in volumes and cash flows that would be staved off around the middle of the year from that we would return to growth.
Since the first quarter resulted in those lost volumes in that lost EBITDA. What we're now expecting is actually a a quarter or a sequential increase in cash flow and and volumes for the remainder of 2021 and into 2020 two.
With all the work you've been doing around ESG lately, what should we expect you to pursue in the short term, but about the long term. This is something that we're really passionate about I'm really passionate about all of the efforts that we've undertaken theres a lot in ESG. So we're going to talk a little bit about each of those items you know.
On the Eve front you know our main focus has been that we want to be the most efficient that we possibly can on our existing assets that includes electric driven compression that includes the methane emissions reductions that were trying to undertake and have undertaken.
Within our existing asset footprint that includes the high vapor pressure oil system that we have as it sits today, we established the ESG.
ESG committee to focus primarily on our existing assets and trying to minimize the environmental footprint that that those operations action.
Actually have that as our first and foremost focus.
We think that there's still some more ground to cover in that regards as some additional improvements that we can make you know as we focus more on being the the greatest stewards overall of our existing asset base on the S. Front, we've actually made some really significant efforts that I'm really proud of that I'm really.
Cash at about as it relates to our community involvement improvement efforts.
We established goals that specifically relate to safety again two years in a row, where we won the G. P. A safety award in the highest category in terms of our total volume of hours worked I'm very.
Proud of the efforts are out there we know that as were safer we improve the lives of the community and the employees that work out there, particularly in the field.
We have established goals around safety, both a tier I or in a dark goal as we highlighted in our in our call.
In addition to that we established environmental oriented goals and our total of volumetric spill rate.
On a category and then we also added another category to our corporate goals related to social involvement in volunteer work thus.
Thus far starting from literally ground zero, we have 18% of our population that is already provided some volunteer hours over 1000 hours.
Across our.
Entire employee workforce are the focus of that involvement is at the local level. So that people will spend time doing work that is specifically related to the communities in which they're involved in and we feel like that's having a pretty material impact on you know on.
Our people in them feeling good about you know the improvements that they're making in the lives of the communities that they associate with as well as the communities themselves.
In addition to the to the social and environmental efforts. We've also made very significant modifications on our governance structure.
Including the establishment of West as a Standalone company the targets and corporate goals that are specifically related to west, which werent in existence before the.
The overall interaction at the board level through the various committees that have been created and you know really are our governance framework that I would say is functioning best in class.
In terms of looking out for the best interests of of less overall, so all three of these efforts have been.
Ben significant initiatives that we've started we're passionate about and expect to continue to make improvements on all of those efforts going forward.
In the prospectus and in the 10-Q, there's a conversation around a dispute with oxy on DJ cost of service rates can you provide additional details including materiality level.
Yeah, I would just refer you to the disclosure on the 10-Q as it relates to that as a commercial matter that will we believe will be resolved and we don't expect that there'll be any net impact as it relates to that to that currently the current dispute at the time of the secondary offering why didn't you guys purchased oxy shares from them and that's a great question. So we have there.
This outstanding buyback program, which we have utilized about $50 million of the $250 million authorized for us to get oxy down below their stated goal of 50% it would actually require us to buy double the amount of units that oxy would have to sell or close to double the amount of unit.
The docs, who would have to sell out in the marketplace. Because you would reduce both the numerator and the denominator. If we were the purchaser of those units in light of the fact that we only had about $200 million left remaining under that buyback program and by virtue of the fact that we paid off $431 million of notes during the period it would've required.
To go both above the authorized buyback program amount and require us to draw on the revolver in order to buyback those units and so on.
You know for us the timing just didn't make sense to participate overall, we're actually really pleased in the fantastic unit holders that bought into that program and that are a great unit holders to have in our register and so very pleased about the results of that but for us in a while.
We obviously have the goal of of being opportunistic on our buyback program are the timing related to it and our discipline related to our overall debt targets that we've established from a leverage standpoint, it just didn't make sense for us to do that.
If you if you if you just do the math on it.
<unk> indicated in there.
In their first quarter call you know they sold $200 million worth of units in West again for west to have the same effect in terms of the percentage reduction of overall ownership for oxy It would require $400 million in that range in order to do so so.
That would have been $831 million of cash outlay in one quarter would require us to draw on the revolver on would've been a couple of hundred million dollars in excess of what our authorized buyback amount would be it doesn't look like you've repurchased any additional units since the year end call will you continue to utilize the program. We do still think that there is a value associated with the buyer.
Back program.
We previously were executing that under our programmatic structure as we sit here today, we actually plan to utilize that program on a more opportunistic basis, particularly if we see that there's potential dislocations overall in the in the marketplace. So we definitely still see that theres value. There. We're just we're going to focus on it.
It being a more opportunistic program as opposed to a programmatic structure.
For us it's now a question of what adds more value accelerating additional debt repurchases or potentially accelerating the buyback purchases in a more opportunistic basis and so those are levers that we plan on pulling throughout the remainder of the year and likely into the future as well in the press release, you mentioned your ability to get to three times leverage by 20.
25 increased the distribution by 5% annually and path all maturities through 2025.
Is three times leverage your new long term target, it's not actually our long term target you know I really look at four times as our threshold level. We have set out what we expect you know the targets to be or potential levels to be under the different scenarios and so for us. It's four times by year end 2021 three and a half times by.
At year end 2022, and then again, an indication that we could get to three times in 2025 that by the way, including a 5% annual distribution growth rate and paying off all of our maturities between now and then you know the totality of those maturities as over $2 billion of debt.
To pay off during that period and so what what this does is this allows us greater flexibility to enhance the overall return profile to our stakeholders as a whole by being materially below four times. So if we look at four times is a bit of a threshold level for US you know as you get.
Now on to three and a half and three times and that just provides enhanced opportunities to be able to provide additional return opportunities to our to our stakeholders as we get down lower than those levels that by the way. In addition to you know again, providing you know where that the path that we go down you know if I per cent distribution growth over that.
A period of time and again, that's all subject to board approval and you'll continue to have an active dialogue with the board as it relates to both the distribution growth rate going forward is whether is it.
As well as utilization of our additional debt repurchases and unit buybacks or.
Capital.
Outlays that will enhance the overall return profile of the business, but we have now that flexibility to be able to offer all of those alternatives as we get lower and lower into the leverage spectrum.
Should we conclude that if nothing materially negative happens you'll be looking at growth of the distribution by 5% a year, what we actually have done you know through the disciplined program that we started out in the beginning of 'twenty 'twenty around debt reduction and improvement in operational efficiencies of the business reduction of capital.
Repaying the debt buying back units.
What we've done is we've been able to provide sufficient.
Additional capacity under our free cash flow after distribution level to be able to offer up 5% over the next three years and non actually change the overall free cash cash flow after distribution levels materially and so you know as we looked at being able to deliver that back to unit holders in light of the that discipline just makes sense.
It made sense to us to deliver it back to unit holders because of our ability to enhance the free cash flow levels. You know through those methods as we get much further than that you know will continue to be a board level decision as to whether or not that will be.
The capacity that are that we will be able to enhance the return to our stakeholders as a whole or if there are through other means.
But it is in a great place to be to have already repurchased enough units pay off enough debt and expect to pay off additional debt to be able to deliver that return to the unit holders without actually materially increasing our free cash flow after distributions that doesn't even give effect to again the free cash flow.
On the company that has been materially improved since we began in 2020.
So we just think that over the next three years the ability to deliver on that because of what we've done makes all the sense from the world anything. In addition to that are outside of that period and it'll be a decision that are that will make together with the board. Thanks, Michael for joining us for today's call any closing remarks, congratulations Chris on on your promotion.
Thank you.
And thank you for joining per person.
Charlie.
If he has any additional cash.
I can speak to adhere.
Please reach out via email.
Our contact information is on our website.
At Western Midstream partners.
Thank you.
Okay.