Q2 2021 Western Midstream Partners LP Post-Earnings Interview With CEO
Turning fireside chat with Michael you're I'm, Kristen Shults, our SVP of finance and communications here at Western Midstream and excited to have you here with US today, Michael Hello, let's start out by talking about capital.
Why are we seeing an increase in capital for the second quarter as compared to the first and how should we think about the rest of the year as it relates to capital. So the second quarter was unexpected increase relative to the first quarter. If you recall the first quarter, we were a little hampered as it relates to Yuri which disrupted some of our projects are delayed some of our projects. So our.
<unk> was always that second quarter would be higher than first quarter from a capital perspective, what has changed since that time is that we have had great success in attracting new business and in an increase overall in activity levels on our position, which has resulted in an increase in the expectations of total capital for the year more back.
Half oriented as we prepare for those volumes to come onto our system, starting really in 2022 and beyond.
Turning towards EBITDA, what's the cadence of EBITDA for the remainder of 2020. One we had a great outperformance from a second quarter perspective, we had a little bit of underperformance in the first quarter as a result of Yuriy and so as you look at the remainder for the totality of 2021 we expect to be above the midpoint of our.
Our guidance range.
As we started thinking about 'twenty 'twenty two what expectations do you have around 2022, we have not provided guidance specifically yet as it relates to 'twenty 'twenty two but a couple of things that we have noted is that as we exit 'twenty 'twenty. One we're exiting at a growth trajectory that did not happen as we entered 2021.
And so expectations are that that growth trajectory would project forward in a positive manner as it relates to 2022 compared to the way that we entered into 'twenty 'twenty. One the second comment is reflection of the increased capital that we're expecting to spend in 2020 one.
Where that is very volume oriented capital mainly in well connects and additional compression that are a result of the expectations of additional volumes coming onto our system, which are likely to be appreciated in 2022 and beyond so the capital that we're spending this year is a reflection of the expected growth in the system that are that we have.
B appreciating the value of and in 2022 looking at 2021 capital there seems to be a large increase that should occur in the second half of the year.
Should we be using the second half of 2021 capital as a proxy for 'twenty 'twenty two capital we wouldn't recommend looking at the back half of 2021 for a proxy for what we would expect in 'twenty 'twenty two at this point given the increase in capital for 2020, one as a reflection of an increase in activity levels across the system.
We have yet to go through the budget process for the majority of our producers and frankly for all of our producers and therefore, our expectations for 2022 capital not yet built into the system, but would not necessarily look at the back half of 2021 which has been an acceleration or an increase in the overall activity levels relative to expectations.
From a capital perspective will provide more details once we have better insight into what those activity levels for our producer customers will look like going into 2022, and 'twenty 'twenty three for that matter for the volumes that we will have to bring onto the system during those periods turning towards the Delaware.
The activity increases do you foresee any capacity constraints in the Delaware and a need for additional processing capacity would you consider an acquisition to help you expand your current capacity.
As we sit here today, we do not foresee the need for increases overall in the in the mainline infrastructure necessary in order to gather the volumes that we're expecting into.
Into 2022, our primary focus has been on finding other ways that we can utilize the existing capacity that exists in the area that we operate in whether it's through offloads or other arrangements with our customers who might have an excess of capacity, where our system may not you know should that be the occasion that we find ourselves in so as we look.
At capital for 2022 from a relationship to 2021 we actually expect it to be a pretty similar ratio and spend profile.
Not necessarily in terms of levels, but in terms of where that capital is likely to be spent in 2022 and beyond as it relates to acquisitions.
Acquisitions, obviously, we'll we'll continue to look at ways that we can enhance our business overall a couple of advantages that we have is we have a phenomenal customer base and we've got a great existing backbone infrastructure and in as much as there are acquisition opportunities that would plug into that infrastructure and help us alleviate some potential capacity constraints, then we'll definitely take a look at.
Those avenues to accrue value for our stakeholders, but as we as we look here today you know our focus is on just gathering the existing volumes and try and utilizing the excess capacity that may exist in the system.
And now towards the D. J can you provide additional details around the recently discussed Crestone deal.
So crestone dedicated approximately 74000 acres in the Watkins area to Wes as well as in up to an additional 148000 acres that may be acquired and connected into the system. It's a long term contract a minimal capital requirements for us the increase overall in volumes in our system, we expect to happen in 2022.
And beyond so not necessarily a great impact as it relates to 2020. One we do look at that however, as you know a strong indication of our great relationships with our customers of our competitiveness from a operating cost and capital cost perspective, as well as the importance that we have given to all of our customers overall as well.
We've refocused our efforts from a Standalone company perspective towards finance can you provide your thoughts on capital allocation.
Our first priority continues to be overall leverage reduction, which we've made significant progress on over the past couple of years. We also are focused on delivering the distribution growth target that was outlined about six months ago overall of being able to return additional distribution to our customers because of the efforts that we've employed on reducing our <unk>.
On account as well as our overall debt expense interest expense on that debt will continue to Opportunistically look for unit repurchases. Overall, it's a program that we think you know definitely has has value we have $201 million of outstanding availability under that program and plan to opportunistically employ that program.
Over the remainder of the year Western midstream seems to be generating significant free cash flow at this point any thoughts on growing the distribution by more than 5% in the near term and if so would you consider a gradual increase or a material step up it's a great question and an exciting one overall for us because it highlights the fact that we made such progress.
On the on the overall leverage reduction effort as well as significant progress on our free cash flow generation of the company and so it's a great opportunity one in which we relish to have the conversation with the board at the appropriate time once we've achieved in some of the key targets or at least have a path towards achieving some of the key targets that we have set out to be able to.
We assess the levels of distribution and our ways in which we can return capital to our stakeholders before.
Before we closed do you have any additional comments to share with the listeners. The the final thought I'd like to leave is obviously, we're very proud of the position that we find ourselves in today. The improvements that we've made from an operational and financial perspective, very much looking forward to the future. The recent results as an indication of the optimism that we have with regards to the <unk>.
Growth that is available to us as a company. So really excited about the progress we've made and frankly really are excited about the opportunities that we have going forward for all those who participated with us over the past little while and for those who will participate with us in the future great. Thanks, Michael.
And thanks, everyone for joining us today, if you have any questions. Please feel free to reach out my contact information is on our website at western midstream Dot com. Thank you.