Q3 2022 Western Midstream Partners LP Post-Earnings Presentation

<unk> development John Greenberg.

Okay. Kristen so why are we expecting to be at the low end of our previously disclosed 2022, adjusted EBITDA guidance range as we look toward the fourth quarter, we expect throughput to increase sequentially across all our three products, but at a slightly reduced rate compared to what we saw last quarter.

There are some supply chain issues and human capital constraints that our producers are experiencing out in the field, it's not specific to just the private theyre just the public.

Are they integrated it is something that we're seeing across the board, but those supply chain human capital constraints have caused delays and wells coming online in general those wells are still coming it's just at a slightly slower pace and so it's pushing those wells out to the right just a little bit.

What were the primary drivers of our gross margin per unit in the third quarter and what our expectations for the fourth quarter.

Our per Mcf adjusted gross margin for natural gas decreased by <unk> for the quarter. This was primarily due to decrease in distributions from our equity investments and lower excess natural gas liquid volumes under fixed recovery contracts in combination with lower natural gas liquids pricing if you remember.

Earlier in the year, we entered into and converted some of our actual recovery contracts to fixed recovery contracts.

Because of that to the extent that our plants outperformed those fixed recovery percentages, we get to keep those excess volumes and then sell them in the market at whatever commodity prices are relevant at that time.

So when we see some of these commodity price increases and decreases its going to impact that gross margin uplift that we've been seeing from fixed from entering into those fixed recovery contracts and so that's part of the reason that you saw that decrease our NCS was fixed recovery contracts in combination with the lower price.

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This was all partially offset by an increase in the product based service revenues associated with some utility expense in the Delaware basin about 50% of our utility expense, we actually passed back to our producers not portfolio wide.

<unk> of that and just depends on the contract is actually included within our adjusted gross margin and so it funneled into the adjusted gross margin per Mcf metric that we have.

As we're looking towards the fourth quarter I'm expecting that that adjusted gross margin per Mcf to decrease for natural gas.

Partially because of the utility reimbursements, we just discussed we expect in general for our utility expense to come down in the fourth quarter as it gets to be a little bit cooler and pricing is coming down.

And that will then filter backup into the adjusted gross margin like we just discussed Additionally, as we're increasing volumes in the Delaware Basin, we're going to see some increased offload fees.

We are predicting at least at this point forecasting lower commodity prices associated with those.

Fixed recovery contracts.

In Q4, I think we will see some higher distributions from our <unk> still lower than on a full year basis than what we had in 2021, but higher just in the fourth quarter.

That plus the decline in the DJ that we've been experiencing and some additional deficiency revenues. There I think we will see that oil margin creep back up to what we saw really between the second and third quarter on the water margin. We saw that rise by <unk> on a sequential quarter basis. This had a lot to do with contract mix and.

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Don't expect that deficiency revenue to continue into the fourth quarter as we're seeing volumes continue to increase in the Delaware and so I expect that rate to be more in line with what we saw in second quarter.

And just historically more of about 90 per barrel rate.

Why it was O&M materially higher in the third quarter and what are our expectations for the fourth quarter. Our O&M expense increased by approximately $22 million in the third quarter. At this was because of field level disclosed project costs that are supporting our transformation efforts, we actually talked about this during our second quarter call. We expected this to happen.

And third quarter, it was about $10 million for that our utility costs also increased quarter over quarter.

From a range perspective, our utilities are about 20% to 30% of our opex costs and so when we found natural gas prices increase along with just the usage during the summer months that led to an uptake in the utility costs that we paid.

As we're going into the fourth quarter I expect that utility cost to decrease again more in line with what we had in the second quarter those type of transformation costs that we hide shouldnt be reoccurring in the fourth quarter.

And so I expect it to be more in line with O&M that we saw in the second quarter with the one exception of as we continue to see increased volumes on our water side that will continue to pay additional surface land use fees and so that the variable component that's going into the opex that would increase with <unk>.

<unk> water volumes.

What are our preliminary thoughts and expectations regarding 2023 as were looking towards 2023, we expect our current producer forecast to be coming in within the next few months, but overall, we think throughput exit rates are going to grow year over year.

We're actively managing our supply chain and the impact of inflationary cost with those cost pressures still look like they're going to be high in 2023, which will play into our opex.

We're going to receive final budgets over the next few months, we're going to be calculating the annual cost of service rate Redetermination. So that will also impact our 2023 forecast and guidance.

Alright, John Obviously ranch West, Texas, a great transaction for West in line with our prior messaging regarding our M&A strategy tell us a little bit about how the deal came about.

Sure. Thanks Daniel.

The Orange Westtech's deal is really a great strategic bolt on for us.

So as an immediate need for gas processing capacity in the Delaware. So that we can service our customers growth and are really a capital efficient way and we found that this one was really ideal from a number of perspectives.

We've been JV partners with energy transfer and this plan for quite some time and the plant is already connected to our gathering system. So we were already very familiar with the plant and.

And through this deal we really get access to the full capacity of the plant of 125 million cubic feet a day. Despite the fact that we only paid for 50% of appointed.

Fully controlling the plant and taking over operator ship versus participating as a non operated JV partner really allows us to optimize that processing capacity and to integrate the plant into the rest of our west Texas complex.

Why don't you talk to us a little bit about valuation.

Sure.

As far as valuation, we think we were able to purchase the interest for an attractive price that we estimate will be below the cost to build a comparable new point.

And as an added benefit we get this capacity right away versus having the lead time associated with constructing a new plant.

So overall, we think this deal really checks a lot of boxes for us from both a strategic and evaluation perspective.

Obviously, the cactus deal was well received how do you view, our M&A strategy on our non core assets on a go forward basis, I think our noncore asset strategy is really just consistent going forward on those assets. We're looking for any ways, we can to optimize value whether it be a sale or other strategic alternatives.

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We're flexible.

As long as we feel like it's going to deliver value for our unit holders within our non core asset footprint, we still have a significant portfolio of non operated JV pipelines. These are very high quality assets are highly contracted stable assets with very low capital requirements and so with this portfolio, we tend to look for opportunities to monetize at a fee.

<unk> valuation that is consistent with the high quality of these assets and Thats. What we think we've achieved here on taxes to specifically with regard to the cactus transaction tell us about the background on the deal how it came about in a little bit about valuation yes.

Yes in terms of background, we spoke with our JV partners to see if they would have an interest in purchasing our stake and they did.

And this really seems like a win win deal for all parties. We think we've gotten an attractive valuation for our interest, which we can then redeploy into other capital opportunities on valuation as we would for any transaction. We did a thorough analysis using multiple methodologies net present value analysis precedent transactions public company valuation.

And we thought that the valuation screened attractive on all those fronts.

And for planes and Enbridge, they have complementary assets in terms of long haul pipelines and other infrastructure on the Gulf Coast, we're acquiring our interest is beneficial to them and further into their strategy.

Overall, we're really pleased with the deal and we think it adds a lot of value to our unit holders.

Kristen and John Thank you for joining us today for our listeners. If you have any additional questions. Please feel free to reach out to us our contact information is located in the Investor Relations section of our website at Www Dot Western midstream is dot com.