Q2 2024 Western Midstream Partners LP Earnings Call

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Ludi: Good afternoon. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Leadstream Partners Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Ludi: Good afternoon. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Meatstream Partners' second quarter 2024 earnings conference call.

Ludi: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number 2. I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please do so.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number 2.

Speaker Change: I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Speaker Change: Hello, I'm Michael Ure, I'm Michael Ure, I'm Michael Ure, I'm Michael Ure,

Speaker Change: Thank you for watching, see you in the next video.

Daniel Jenkins: I'm glad you could join us today for Western Midstream's second quarter 2024 conference call. I'd like to remind you... Last night's earnings release contained important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please refer to Western Midstream's most recent Form 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from what we discussed today. Relevant reference materials are posted on our website. With me today are Michael Ure, our Chief Executive Officer, and Kristen Shults, our Chief Financial Officer. I'll now turn the call over to Michael.

Daniel Jenkins: Thank you. I'm glad you could join us today for Western Midstream's second quarter 2024 conference call.

Speaker Change: I'd like to remind you that today's call, the accompanying slide deck, and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations.

Speaker Change: Please reference Western Midstream's most recent Form 10-Q and other public filings for a description of risk factors that could cause actual results.

Speaker Change: to differ materially from one another.

Thank you, Daniel, and good afternoon, everyone.

Michael Ure: Thank you, Daniel, and good afternoon, everyone. Yesterday afternoon, we reported another strong operational quarter for West. Our sequential quarter throughput growth was driven by robust system operability, and, as a result, we experienced throughput records for both natural gas and crude oil and NGLs in the Delaware Basin for the fifth consecutive quarter. Taking these results into consideration, we still expect our throughput to steadily grow for the remainder of the year and for West to be towards the high end of our 2024 adjusted EBITDA and free cash flow guidance ranges. The second quarter was also very successful from a commercial perspective as we executed numerous agreements with both new and existing customers in several of our most active basins.

Speaker Change: Yesterday afternoon, we reported another strong operational quarter for West.

Speaker Change: Our sequential quarter throughput growth was driven by a robust system operability, and as a result, we experienced throughput records from both natural gas and crude oil and NGLs in the Delaware Basin for the fifth consecutive quarter.

Taking these results into consideration, we still expect our throughput to steadily grow for the remainder of the year and for West to be towards the high end of our 2024 Adjusted EBITDA and Free Cash Flow Guidance ranges.

Speaker Change: The second quarter was also very successful from a commercial perspective, as we executed numerous agreements with both new and existing customers in several of our most active basins.

Michael Ure: First, in the Delaware Basin, we signed several new agreements with both public and private customers for natural gas and produced water services that will positively benefit West starting in the third quarter and to an even greater extent in 2025. Second, in the DJ Basin, we executed an amendment to DCP Midstream, now Phillips 66,'s natural gas processing agreement in the DJ Basin to extend the original firm processing capacity of 175 million cubic feet per day from 2027 to 2029 on a 100% take or pay basis.

Speaker Change: First, in the Delaware Basin, we signed several new agreements with both public and private customers for natural gas and produced water services that will positively benefit West.

Speaker Change: starting in the third quarter and to an even greater extent in 2025.

Michael Ure: Additionally, this multi-year amendment provides Phillips 66 with an incremental 200 million cubic feet per day of firm processing capacity, primarily supported by minimum volume commitments starting in 2026. If fully utilized, these agreements could fill up the remaining capacity across our D.J. Basin complex over the coming years. Third, and just after quarter end, in Utah, we executed a multi-year natural gas processing agreement with Kinder Morgan in support of their Altamont Green River Pipeline Project, providing for up to 150 million cubic feet per day of firm processing capacity at our Chepita facility in the Uinta Basin, which is expected to be in service by mid-2025.

Speaker Change: Second, in the D.J. Basin, we executed an amendment to DCP Midstream's, now Phillips 66's, natural gas processing agreement in the D.J. Basin to extend the original firm processing capacity of 175 million cubic feet per day from 2027 to 2029 on a 100% take or pay basis.

Speaker Change: Additionally, this multi-year amendment provides Phillips 66 with an incremental 200 million cubic feet per day of firm processing capacity, primarily supported by minimum volume commitments starting in 2026.

Speaker Change: If fully utilized, these agreements could fill up the remaining capacity across our DJ Basin Complex over the coming years.

Speaker Change: Third, and just after quarter end, in Utah, we executed a multi-year natural gas processing agreement with Kinder Morgan in support of their Altamont Green River Pipeline project providing for up to 150 million cubic feet per day of firm processing capacity at our Chapita facility in the Uinta Basin, which is expected to be in service by mid-2025.

Michael Ure: Finally, we executed agreements with several customers supporting Williams Company's Mountain West Pipeline expansion to provide up to 110 million cubic feet per day of natural gas processing capacity at our Chapita facility. We have already begun to receive a portion of these volumes, and we expect additional volumes in the months ahead. Taking all these agreements into account, we believe our existing cryogenic capacity at Chapita of 550 million cubic feet per day may be fully utilized by the second half of 2025.

Speaker Change: Finally, we executed agreements with several customers supporting Williams Company's Mountain West Pipeline expansion to provide up to 110 million cubic feet per day of natural gas processing capacity at our Jupiter facility.

Speaker Change: We have already begun to receive a portion of these volumes, and we expect incremental volumes in the months ahead.

Speaker Change: Taking all these agreements into account, we believe our existing cryogenic capacity at Chepita of 550 million cubic feet per day may be fully utilized by the second half of 2025.

Kristen Shults: Turning to the balance sheet, the sale of non-core assets throughout the first quarter and early in the second quarter enabled us to achieve our trailing 12-month net leverage ratio threshold three times earlier than anticipated. In this leveraged environment, we will continue to look for the most efficient ways to allocate capital to generate the best returns for our unit holders over time. Those options include investing capital to prudently expand the business. In order to bring more throughput onto our systems, we will continue to allocate capital to organic growth projects that grow volumes and meet our strict return thresholds with the goal of driving adjusted EBITDA and free cash flow higher and enhancing our return on assets over time.

Speaker Change: Turning to the balance sheet, the sale of non-core assets throughout the first quarter and early in the second quarter enabled us to achieve our trailing 12-month net leverage ratio threshold of three times earlier than anticipated.

Speaker Change: In this leveraged environment, we will continue to look for the most efficient ways to allocate capital to generate the best returns for our unit holders over time. Those options include investing capital to prudently expand the business,

Speaker Change: In order to bring more throughput onto our systems, we will continue to allocate capital to organic growth projects that grow volumes and meet our strict returns thresholds, with the goal of driving adjusted EBITDA and free cash flow higher and enhancing our return on assets over time.

Kristen Shults: Second, allocating capital towards accretive M&A. We continue to evaluate strategic opportunities that will ultimately enhance the value of our existing asset base, such as the Meritage Midstream acquisition that closed in the fourth quarter of 2023. And finally, increasing the base distribution. As our business grows and we generate incremental free cash flow, management and the board will continue to look at opportunities to grow the base distribution in line with the overall growth of our business.

Speaker Change: Second, allocating capital towards a creative M&A.

Speaker Change: We continue to evaluate strategic opportunities that will ultimately enhance the value of our existing asset base.

Speaker Change: such as the Meritage Midstream Acquisition that closed in the fourth quarter of 2023.

Speaker Change: And finally, increasing the base distribution.

Speaker Change: As our business grows and we generate incremental free cash flow, management and the board will continue to look at opportunities to grow the base distribution in line with the overall growth in our business.

Kristen Shults: If our business outperforms relative to our initial expectations in a given year, we also have the enhanced distribution framework in place to return even more capital to unit holders. We will remain opportunistic regarding unit buybacks and additional debt retirement. However, based on current market conditions and our net leverage ratio of three times, we do not expect these options to be the most efficient ways to allocate capital. With that said, I will turn the call over to Kristen to discuss our operational and financial performance.

Speaker Change: If our business outperforms relative to our initial expectations in a given year, we also have the Enhanced Distribution Framework in place to return even more capital to unit holders.

Speaker Change: We will remain opportunistic regarding unit buybacks and additional debt retirement. However, based on current market conditions and our net leverage ratio of three times, we do not expect these options to be the most efficient ways to allocate capital. With that, I will turn the call over to Kristen to discuss our operational and financial performance.

Kristen Shults: Thank you, Michael, and good afternoon, everyone. Our reported second quarter natural gas throughput was relatively flat on a sequential quarter basis, primarily due to strong throughput growth in the Delaware, DJ, and Powder River basins offset by decreased throughput from the sale of the Marcellus Gathering System early in the second quarter. Our natural gas throughput from our operated assets increased by 3% on a sequential quarter basis. While our reported crude oil and NGL throughput declined by 9% on a sequential quarter basis as a result of equity investment divestitures completed during the first quarter, our crude oil and NGL throughput from our operated assets increased by 6% on a sequential quarter basis due to strong throughput growth in the Delaware, DJ, and Powder River Basin. Produced water throughput decreased by 4% on a sequential quarter basis due to fluctuations in produced water used for recycling activities and upstream operations of our producer.

Kristen: Thank you, Michael, and good afternoon, everyone. Our reported second quarter natural gas throughput was relatively flat on a sequential quarter basis, primarily due to strong throughput growth in the Delaware, DJ, and Powder River basins offset by decreased throughput from the sale of the Marcellus Gathering System early in the second quarter.

Speaker Change: Our natural gas throughput from our operated assets increased by 3% on a sequential quarter basis.

Speaker Change: While a reported crude oil and NGL throughput declined by 9% on a sequential quarter basis as a result of equity investment divestitures completed during the first quarter,

Speaker Change: Our crude oil and NGL throughput from our operated assets increased by 6% on a sequential quarter basis due to strong throughput growth in the Delaware, DJ, and Powder River basins.

Speaker Change: Produced water throughput decreased by 4% on a sequential quarter basis due to fluctuations in produced water used for recycling activities and upstream operations of our producers.

Kristen Shults: Our second quarter per MCF Adjusted Growth Margin for Natural Gas Assets was relatively flat quarter over quarter, and we expect our third quarter per MCF Adjusted Growth Margin to be in line with the second quarter. Our second quarter per barrel adjusted growth margin for our crude oil and NGL assets increased by four cents compared to the prior quarter. This was primarily due to the sale of our interest in the White Thorn and Saddlehorn pipelines in the first quarter, both of which had lower than average per unit margins as compared to our other crude oil and NGL assets and increased throughput in the Delaware Basin.

Speaker Change: Our second quarter per MCF adjusted growth margin for natural gas assets was relatively flat quarter over quarter. And we expect our third quarter per MCF adjusted growth margin to be in line with the second quarter.

Speaker Change: Our second quarter per barrel adjusted growth margin for our crude oil and NGL assets increased by 4 cents compared to the prior quarter.

Speaker Change: This was primarily due to the sale of our interest in the White Thorn and Saddlehorn pipelines in the first quarter, both of which had a lower-than-average per-unit margins as compared to our other crude oil and NGL assets, and increased throughput in the Delaware Basin.

Speaker Change: We expect our third quarter per barrel adjusted growth margin to be in line with the second quarter. Our second quarter per barrel adjusted growth margin for our produced water assets was also relatively flat quarter over quarter, and we expect our third quarter per barrel adjusted growth margin to be in line with the second quarter.

Kristen Shults: We expect our third quarter per barrel adjusted growth margin to be in line with the second quarter. Our second quarter per barrel adjusted growth margin for our produced water assets was also relatively flat quarter over quarter, and we expect our third quarter per barrel adjusted growth margin to be in line with the second quarter. During the second quarter, we generated net income attributable to limited partners of $370 million, and an adjusted EBITDA of $578 million.

Speaker Change: During the second quarter, we generated net income attributable to limited partners of $370 million and adjusted EBITDA of $578 million.

Kristen Shults: Relative to the first quarter, our adjusted growth margin decreased by $9 million. This decrease was mostly driven by the sale of the Marcellus Gathering System and the equity investment, partially offset by higher throughput and profitability from the Delaware, DJ, and Powder River Basins.

Speaker Change: Relative to the first quarter, our adjusted gross margin decreased by $9 million. This decrease was mostly driven by the sale of the Marcellus Gathering System and the equity investment, partially offset by higher throughput and profitability from the Delaware, DJ, and Powder River Basins.

Kristen Shults: Our adjusted EBITDA decreased sequentially by 5%, or $30 million, due to the decrease in adjusted growth margin that I just mentioned, increased operation and maintenance expense, and more normalized property and other taxes. However, if you recall, in the first quarter, we benefited from lower-than-anticipated costs, which resulted in higher-than-expected adjusted EBITDA. Going forward, we expect our operation and maintenance expense to trend modestly higher in the third quarter, primarily driven by increased throughput, seasonally higher utility costs, and increased asset maintenance and repair expense. As a reminder, we expect seasonality associated with our utility expense in the summer months due to higher estimated electricity pricing and greater energy usage in conjunction with increased throughput.

Speaker Change: Our adjusted EBITDA decreased sequentially by 5% or $30 million due to the decrease in adjusted growth margin that I just mentioned.

Speaker Change: increased operation and maintenance expense, and more normalized property and other taxes. If you recall, in the first quarter, we benefited from lower than anticipated costs, which resulted in higher than expected adjusted EBITDA.

Speaker Change: Going forward, we expect our operation and maintenance expense to trend modestly higher in the third quarter, primarily driven by increased throughput, seasonally higher utility costs,

Speaker Change: and increased asset maintenance and repair expense. As a reminder, we expect seasonality associated with our utility expense in the summer months due to higher estimated electricity pricing and greater energy usage in conjunction with increased throughput.

Kristen Shults: Turning to cash flow, our second quarter cash flow from operating activities totaled $631 million, generating free cash flow of $425 million. Free cash flow after our first quarter 2024 distribution payment in May of $84 million. From a capital markets perspective, as previously announced, in the second quarter, we opportunistically repurchased $135 million of senior notes through open market transactions, which has resulted in $150 million of total debt repurchases year-to-date, all at approximately 96% of par.

Speaker Change: Turning to cash flow, our second quarter cash flow from operating activities totaled $631 million, generating free cash flow of $425 million.

Speaker Change: Free cash flow after our first quarter 2024 distribution payment in May was $84 million.

Speaker Change: From a capital markets perspective, as previously announced, in the second quarter, we opportunistically repurchased $135 million of senior notes through open market transactions.

Speaker Change: which has resulted in $150 million of total debt repurchases year-to-date.

Kristen Shults: Finally, in July, we declared a base distribution of 87.5 cents per unit, which was unchanged relative to our previous announcement in April and is payable on August 14th to unit holders of record as of August 1st. Based on our operating throughput performance to date and continued strong producer activity levels, we still expect average year-over-year throughput growth for all products in the Delaware Basin, DJ Basin, and Powder River Basin. We still expect our portfolio-wide average year-over-year throughput to increase by mid- to upper-teens percentage for natural gas, low-teens percentage for crude oil and NGLs, and mid-to-upper-teens percentage for produced water.

Speaker Change: all at approximately 96% of par.

Speaker Change: Finally, in July , we declared a base distribution of 87.5 cents per unit, which was unchanged relative to our previous announcement in April and is payable on August 14th to unit holders of record as of August 1st.

Speaker Change: Based on our operated throughput performance to date and continued strong producer activity levels, we still expect average year-over-year throughput growth for all products in the Delaware Basin, DJ Basin, and Powder River Basin.

Speaker Change: We still expect our portfolio-wide average year-over-year throughput to increase by mid-to-upper teens percentage for natural gas.

Speaker Change: Low teens percentage for crude oil and NGLs.

Kristen Shults: Focusing on our financial guidance, with the throughput growth I just described, we still expect to be towards the high end of our previously disclosed adjusted EBITDA and free cash flow guidance ranges of $2.2 to $2.4 billion and $1.05 to $1.25 billion for the year, respectively.

Speaker Change: and Mid to Upper Teens Percentage for Produced Water.

Speaker Change: Focusing on our financial guidance, with the throughput growth I just described, we still expect to be towards the high end of our previously disclosed adjusted EBITDA and free cash flow guidance ranges.

Speaker Change: of $2.2 to $2.4 billion and $1.05 to $1.25 billion for the year, respectively. Additionally, we still expect our 2024 capital expenditure guidance to range between $700 and $850 million.

Michael Ure: Additionally, we still expect our 2024 capital expenditure guidance to range between $700 million and $850 million, implying a midpoint of $775 million. We continue to expect just over 80% of our capital budget to be spent in the Delaware Basin, the majority of which is expansion capital for the North Loving Plant construction and additional system expansion to facilitate continued throughput growth. As previously mentioned, we expect to allocate incremental capital to the Powder River, D.J.

Speaker Change: implying a midpoint of $775 million. We continue to expect just over 80% of our capital budget to be spent in the Delaware Basin, the majority of which is expansion capital for the North Loving Plant construction and additional system expansion to facilitate continued throughput growth.

Michael Ure: and Uinta Basins to facilitate throughput growth over the next 18 months. In the Powder River Basin, several existing customers plan to accelerate completion activities as we exit 2024. Thus, we are allocating incremental capital in 2024 and 2025 to expand existing compression facilities and to account for incremental wall connects. In the DJ Basin, we expect to invest incremental capital in 2025 to support the new and extended agreements with Philips 66. And in the Uinta Basin, based on our commercial success connecting Kinder Morgan's Altamont Pipeline and with the shippers on Williams Mountain West Pipeline Expansion, we are allocating incremental capital, predominantly in 2025, to expand pipeline connections, increase existing compression capacity, and expand crude oil stabilization capacity at the facility.

Speaker Change: As previously mentioned, we expect to allocate incremental capital to the Powder River, DJ, and Uinta Basins to facilitate throughput growth over the next 18 months.

Speaker Change: In the Powder River Basin, several existing customers plan to accelerate completion activities as we exit 2024.

Speaker Change: Thus, we are allocating incremental capital in 2024 and 2025 to expand existing compression facilities and to account for incremental well connects. In the DJ Basin, we expect to invest incremental capital in 2025 to support the new and extended agreements with Philip 66.

Speaker Change: And in the Uinta Basin, based on our commercial success connecting Kinder Morgan's Altamont Pipeline and with the shippers on Williams Mountain West Pipeline Expansion, we are allocating incremental capital, predominantly in 2025,

Speaker Change: to expand pipeline connections, increase existing compression capacity, and to expand crude oil stabilization capacity at the facility.

Michael Ure: Our full-year base distribution guidance of at least $3.20 per unit remains unchanged. We will continue to evaluate the base distribution on a quarterly basis, influenced by the health and growth trajectory of our business. As a reminder, any potential enhanced distribution payment in 2025 will be based on our full year 2024 financial performance, governed by our year-end 2024 leverage threshold of three times and subject to the board's discretion. I'll now turn the call back over to Michael. Thank you, Kristen.

Speaker Change: Our full year base distribution guidance of at least $3.20 per unit remains unchanged.

Speaker Change: We will continue to evaluate the base distribution on a quarterly basis, influenced by the health and growth trajectory of our business. As a reminder, any potential enhanced distribution payment in 2025 will be based on our full year 2024 financial performance.

Speaker Change: governed by our year-end 2024 leverage threshold of three times and subject to the board's discretion.

Michael Ure: Thank you, Kristen. I would like to highlight that we will be releasing our annual sustainability report in the coming weeks, which will detail our 2023 sustainability accomplishments. This report highlights our successful attainment of our 2023 sustainability goals, which included targeting and implementing systems and processes to monitor our GHG emissions, safety culture, and community volunteering efforts, as well as additional details on all of our environmental, social, and governance practices. Once available, I encourage you to read more about our 2023 accomplishments in the report.

Speaker Change: I'll now turn the call back over to Michael. Thank you, Kristen. I would like to highlight that we will be releasing our annual sustainability report in the coming weeks, which will detail our 2023 sustainability accomplishments.

Speaker Change: This report highlights our successful attainment of our 2023 sustainability goals.

Speaker Change: which included targeting and implementing systems and processes to monitor our GHG emissions, safety culture, and community volunteering efforts, as well as additional details on all of our environmental, social, and governance practices.

Speaker Change: Once available, I encourage you to read more about our 2023 accomplishments in the report, and we look forward to building on this momentum in the years ahead as we continue to advance energy by enhancing the sustainability of our operations.

Michael Ure: And we look forward to building on this momentum in the years ahead as we continue to advance energy by enhancing the sustainability of our operations. Before we open it up for Q&A, I would like to highlight a few key points and reiterate why WEST remains a differentiated and attractive investment opportunity. Since becoming a standalone organization, we have worked hard to grow the business while greatly improving the financial position of the partnership.

Speaker Change: Before we open it up for Q&A, I would like to highlight a few key points and reiterate why West remains a differentiated and attractive investment opportunity.

Speaker Change: Since becoming a standalone organization, we have worked hard to grow the business while greatly improving the financial position of the partnership.

Michael Ure: We have achieved record operating throughput for several quarters, which has been driven by our increasing asset operability and continued strong activity levels from our producing customers. These strong throughput numbers are expected to result in record adjusted EBITDA and free cash flow this year.

Speaker Change: We have achieved record operated throughput for several quarters, which has been driven by our increasing asset operability and continued strong activity levels from our producing customers. These strong throughput numbers are expected to result in record adjusted EBITDA and free cash flow this year.

Ludi: And these improving trends over the past few years have put us in a position to reduce leverage and return even more capital to stakeholders. We did this while maintaining strict return thresholds for expansion capital spending, which drove increases in return on assets to upper double-digit territory compared to an average of approximately 13% for our midstream peers. We accomplished all of this while paying approximately $3.5 billion in base and enhanced distributions, reducing $943 million of net debt, and repurchasing just over $1.1 billion of WEST units, or approximately 15% of the unaffected unit count, all since early 2020.

Speaker Change: And these improving trends over the past few years have put us in a position to reduce the leverage.

Speaker Change: and to return even more capital to stakeholders. We did this while maintaining strict returns thresholds for expansion capital spending, which drove increases in return on assets to upper double-digit territory compared to an average of approximately 13% for our midstream peers.

Speaker Change: We accomplished all of this while paying approximately $3.5 billion in base and enhanced distributions.

Speaker Change: Reducing $943 million of net debt and repurchasing just over $1.1 billion of WES units, or approximately 15% of the unaffected unit count, all since early 2020.

Ludi: This combination of efforts has culminated in leading unit holder returns and total capital return yield for WEST unit holders relative to our midstream peers, the S&P 500 Index and the S&P 500 Energy Index. Focusing on the distribution yield, West still offers a very compelling investment opportunity when comparing its yield to the average yield of all subsectors within the S&P 500. In fact, West offers more than double the average yield of any sector within the S&P 500 index, and West continues to maintain the highest distribution yield amongst our midstream peers.

Speaker Change: This combination of efforts has culminated in leading unit holder returns and total capital return yield for West unit holders relative to our midstream peers, the S&P 500 Index, and the S&P 500 Energy Index.

Speaker Change: Focusing on the distribution yield, West still offers a very compelling investment opportunity when comparing its yield to the average yield of all subsectors within the S&P 500.

Speaker Change: In fact, WES offers more than double the average yield of any sector within the S&P 500 Index.

Speaker Change: and West continues to maintain the highest distribution yield amongst our midstream peers.

Ludi: Clearly, West continues to provide one of the strongest tax-deferred investment opportunities, not only within the midstream space but relative to all subsectors of the S&P 500. Finally, from a valuation perspective, the current average MLP valuation still trades at approximately 8.5 times, a discount of just over five times compared to the average MLP valuation from 2011 through 2016. Meanwhile, balance sheets continue to strengthen, free cash flow continues to grow, and the future business prospects of the industry remain strong.

Speaker Change: Clearly, West continues to provide one of the strongest.

Speaker Change: Tax Deferred Investment Opportunities

Speaker Change: not only within the midstream space, but relative to all subsectors of the S&P 500.

Speaker Change: Finally, from a valuation perspective,

Speaker Change: The current average MLP valuation still trades at approximately 8.5 times, a discount of just over 5 times compared to the average MLP valuation from 2011 through 2016. Meanwhile, balance sheets continue to strengthen.

Speaker Change: Free cash flow continues to grow, and the future business prospects of the industry remain strong.

Ludi: Also, the average current distribution yield remains just over 9 percent compared to the average MLP distribution yield of just under 7 percent from 2011 through 2016, a time when midstream MLPs generated negative free cash flow, and leverage was increasing. We continue to argue that the new MLP model is deserving of a valuation re-rate, especially when you take into account the corporate tax burden that C-Corps in the midstream space and other sectors of the economy will face over the coming years.

Speaker Change: Also, the average current distribution yield remains just over 9% compared to the average MLP distribution yield of just under 7% from 2011 through 2016, a time when midstream MLPs generated negative free cash flow and leverage was increasing.

Speaker Change: We continue to argue that the new MLP model is deserving of a valuation re-rate, especially when you take into account the corporate tax burden that C-Corps in the midstream space and other sectors of the economy will face over the coming years.

Ludi: There is no doubt that as net operating losses are exhausted, the current tax burden faced by C-Corps will result in less capital available for unit holder returns, which continues to present a very compelling investment opportunity for WES and the MLP space. To close, I would like to thank the entire West workforce for all of their hard work and dedication. I would also like to thank all of the teams within our organization that are working to finalize our 2023 Sustainability Report. The year is off to a strong start, and I look forward to updating you on our third quarter results in November. With that, we will open the line for questions.

Speaker Change: There is no doubt that as net operating losses are exhausted, the current tax burden faced by C-Corps will result in less capital available for unit holder returns, which continues to present a very compelling investment opportunity for West and the MLP space.

West: To close, I would like to thank the entire West workforce for all of their hard work and dedication.

Speaker Change: I would also like to thank all of the teams within our organization that are working to finalize our 2023 Sustainability Report. The year is off to a strong start, and I look forward to updating you on our third quarter results in November . With that, we will open the line for questions.

Ludi: Thank you. At this time, I would like to remind everyone that in order to ask a question, you then have to type the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gabe Moreen at Mizuho. Your line is now open.

Speaker Change: Thank you. At this time I would like to remind everyone in order to ask a question

Speaker Change: All right, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question comes from the line of Gabe Moreen at Mizzou Ho. Your line is now open.

Michael Ure: Hey, good afternoon everyone. I just wanted to ask about the growth that you're seeing in the DJ and Uinta, and it sounds like, you know, whether medium-term or long-term, using up the rest of your slot capacity there. How do you think about potentially growing beyond using up that capacity? Is that something you think you're planning for right now, and just managing growth just in those phases where I don't think, you know, investors were expected to see that six or 12 months ago?

Gabe Moreen: Hey, good afternoon, everyone. I just wanted to ask about the growth that you're seeing.

Speaker Change: and the DJ and the Uinta, and it sounds like, you know, whether...

Speaker Change: Medium-term or long-term using up the rest of your slack capacity there. How do you think about potentially growing beyond? Using up that capacity. Is that something you think you're planning for right now? And just managing growth just in those spaces where I don't think you know investors were expected to see that six or twelve months ago

Michael Ure: Yeah, hey Gabe, this is Michael. We're incredibly excited about the new volumes that we're expecting to come on the system, both for the DJ and the Uinta basins. We were always big believers in those basins, you know, historically, and definitely feel that way today. As we look at it now, we have no expectations or plans in terms of broad expansions within those areas. You know, obviously, we will continue to have capital expenditures as it relates to maintenance and compression and well connects, but currently, we are not projecting to have any major projects in those areas. Or it's about utilization of existing assets and capacity out there, which we're really excited to be able to serve our customers in those areas.

Speaker Change: Hey Gabe, this is Michael. We're incredibly excited about the new volumes that we're expecting to come onto the system, both of the DJ and the UN2 basins. We were always big believers in those basins.

Speaker Change: You know, historically, and definitely feel that way today. As we look at it now, no expectations or plans in terms of broad expansions within those areas.

Speaker Change: You know, obviously, we will continue to have capital expenditures as it relates to maintenance and compression and well connects.

Speaker Change: but currently not projecting to have any major projects in those areas. More it's about utilization of existing assets and capacity out there, which we're really excited to be able to service our customers in those areas.

Michael Ure: Thanks, Michael. And then maybe I can sort of follow up on that question about secondary basins and what you're seeing out there as far as M&A. You were able to get Meritage at a really nice multiple. Are you still seeing that differential out there, I guess, for assets outside the Permian? Is that of interest, particularly now that you've seen, I guess, some perking up and growth in some other basins

Loody: Good afternoon, my name is Loody, and I will be your conference operator today.

Speaker Change: [inaudible]

Speaker Change: Thanks, Michael. And then maybe if I can sort of follow up to that question on secondary basins and what you're seeing out there as far as M&A, you know, you're able to get Meritage at a really nice multiple. Are you still seeing that differential out there, I guess, for assets outside the Permian? Is it out of interest, particularly now that you've seen, I guess, some perking up and growth in some other basins?

Loody: At this time, I would like to welcome everyone to the Western Mead Stream Partner's second quarter, 2020 for earnings conference call. Online seven days on YouTube event, any background noise.

Loody: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press a star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star, followed by the number two.

Michael Ure: Yeah, for us, our focus really hasn't changed from an M&A standpoint. We're really looking at ways in which we can acquire assets so that we can differentiate what it is that is already happening within those assets. So that primarily means that they're in and around areas where we currently operate. And so as we think about M&A, it's about enhancing, typically it's about enhancing the areas in which we currently operate and can provide a differentiated set of synergies related to the opportunity itself.

Speaker Change: Yeah, for us, our focus, you know, really hasn't changed from an M&A standpoint, you know, we're really looking at ways in which we can acquire assets that we can differentiate what it is that is already happening within those assets. And so that

Daniel Jenkins: I would now like to turn the conference over to Daniel Jenkins, Director of Invest Relations, please go ahead. Thank you. I'm glad you could join us today for Western Mead Stream's second quarter, 2024 conference call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings release, contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Mead Stream's most recent form 10Q and other public filings for a description of risk factors that could cause actual results to differ materially from what we discussed today. Relevant reference materials are posted on our website.

Speaker Change: primarily means that they're in and around areas where we currently operate. And so, as we think about M&A, it's about enhancing, you know, typically it's about enhancing, you know, areas in which we currently operate and can provide a differentiated set of synergies related to the opportunity itself.

Michael Ure: Great. And then just if I could squeeze one last standpoint in, you mentioned some additional MVCs in Delaware. Could you maybe quantify some of that? And also, within the bigger picture of kind of where you stand, third-party business versus Oxy, what those MVCs and how they ship things for you?

Speaker Change: Great, and then just if I could squeeze one last standpoint in. You mentioned some additional MVCs in Delaware. Could you maybe quantify some of that and also within the bigger picture of kind of where you stand, third-party business versus Oxy, what those MVCs and how they ship things for you?

Michael Ure: Yeah, so, you know, we are able to, you know, get MVCs that relate to contracts that we get, and that's, you know, irrespective of the counterparty. And so, for us, again, we're really focused on returns overall. We want to make sure that if we're going to spend any capital, we're able to do that at a level that, you know, satisfies those return thresholds where the MVCs come into play. And so, as you've seen in the transactions or the new commercial deals that we've announced, we've been able to do that with MVCs, you know, really across the board, and those are not with related parties.

Speaker Change: Yeah, so, you know, we are able to, you know, get MVCs that relates to contracts that we're getting, and that's, you know, irrespective of the counterparty. And so, for us, again, we're really focused on returns overall. We want to make sure that if we're going to spend any capital, that we're able to do that at a level that, you know, satisfies those returns thresholds where the MVCs come into play. And so, as you've seen in the transactions or the new commercial deals that we've announced.

Daniel Jenkins: With me today or Michael Year, our Chief Executive Officer and Kristen Schultz, our Chief Financial Officer.

Michael Ure: Okay, thanks very much.

Michael Ure: I'll now turn the call over to Michael. Thank you Daniel.

Michael Ure: Good afternoon everyone. Yesterday afternoon, we reported another strong operational quarter for West. Our sequential quarter throughput growth was driven by a robust system operability. And as a result, we experienced throughput records from both natural gas and crude oil and NGLs in the Delaware Basin for the fifth consecutive quarter. Taking these results into consideration, we still expect our throughput to steadily grow for the remainder of the year and for West to be towards the high end of our 2024 adjusted EBITDA and free cash flow guidance ranges.

Speaker Change: We've been able to do that with MVCs really across the board, and those are not with related parties.

Speaker Change: Okay, thanks very much. Thanks again.

Ludi: Thank you. Your next question comes from the line of Keith Stanley at Wolf Research. Your line is now open.

Speaker Change: Thank you. Your next question comes from the line of Keith Stanley at Wolfe Research. Your line is now open.

Michael Ure: The second quarter was also very successful from a commercial perspective, as we executed numerous agreements with both new and existing customers in several of our most active basins. First, in the Delaware Basin, we signed several new agreements with both public and private customers for natural gas and produced water services that will positively benefit West starting in the third quarter and to an even greater extent in 2025. Second, in the DJ Basin, we executed an amendment to DCP midstreams now fill up 66s natural gas processing agreement in the DJ Basin to extend the original firm processing capacity of 175 million cubic feet per day from 2020 to 2029 on a 100% takeer pay basis.

Michael Ure: Hi, good afternoon. So just touching back on, I guess, CapEx. In the past, you've talked about a meaningful year-over-year decline in 2025 CapEx. Any updated comments you'd make there, given the need to invest some in growth in the DJ, PRB, and Uinta basins? And separately, any progress on contracting for a new plant in the Permian, or is there still a lot to do on that before moving forward? Yeah.

Keith Stanley: Hi, good afternoon.

Keith Stanley: So just touching back on, I guess, CapEx, in the past you've talked about a meaningful year-over-year decline in 2025 CapEx.

Keith Stanley: Any updated comments you'd make there?

Speaker Change: given the need to invest some in growth in the DJ, PRB, and Uintah basins. And then separately, any progress on contracting for a new plant in the Permian, or is there still a lot to do on that before moving forward?

Michael Ure: Yeah, so we would expect that there will be a step down. There will be a step down in capital for 2025. Obviously, we're excited about the new commercial agreements, which will require a little bit of capital in order to satisfy those agreements and make our customers happy. As it relates to new plants in the Permian, there are no plans to increase plant capacity in the Permian as we sit here today, so no change from previous comments that we've made on increasing capacity there.

Speaker Change: Yeah, so we would expect that there will be a step down, there would be a step down in capital for 2025.

Speaker Change: Obviously, we're excited about the new commercial agreements, which will require a little bit of capital in order to satisfy those agreements and make our customers happy.

Michael Ure: Additionally, this multi-year amendment provides Philip 66 with an incremental 200 million cubic feet per day of firm processing capacity, primarily supported by minimum volume commitments starting in 2026. If fully utilized, these agreements could fill up the remaining capacity across our DJ Basin complex over the coming years. Third, and just after quarter end, in Utah, we executed a multi-year natural gas processing agreement with Kinder Morgan in support of their Altamont Green River Pipeline project providing for up to 150 million cubic feet per day of firm processing capacity at our JAPIDA facility in the UN to Basin, which is expected to be in service by mid 2025.

Speaker Change: As it relates to new plants in the Permian, no plans to increase plant capacity in the Permian as we sit here today, so no change from previous comments that we've made on increasing capacity there.

Michael Ure: Thanks for that. Second question.

Speaker Change: Thanks for that. Second question, so leverage you got to your three times target now, does that impact how you think about the timing for another distribution increase or is that more tied to growth in free cash flow in the business?

Michael Ure: So leverage, you got to your three times target now. Does that impact how you think about the timing for another distribution increase? Or is that more tied to growth in free cash flow in the business? Yeah, it's a little bit of both.

Michael Ure: Yeah, it's a little bit of both. Obviously, we're really excited to be able to get to that level earlier than expected. As we think about the base distribution itself, we really try and tie that to the free cash flow generation of the business and then what it is that we can and should be using that capital for. Now that we are at the three times leverage level, as I mentioned in my prepared remarks, that really opens up the possibility for us to be able to use that capital without having the need to focus as much on buybacks, whether they're debt or equity around distribution growth, base distribution growth itself.

Michael Ure: Finally, we executed agreements with several customers supporting Williams company's Mountain West pipeline expansion to provide up to 110 million cubic feet per day of natural gas processing capacity at our JAPIDA facility. We've already begun to receive a portion of these volumes and we expect incremental volumes in the months ahead. Taking all these agreements into account, we believe our existing crowd-genic capacity at JAPIDA of 550 million cubic feet per day may be fully utilized by the second half of 2025.

Speaker Change: Yeah, it's a little bit of both. Obviously, we're really excited to be able to get to that level earlier than expectations.

Speaker Change: As we think about base distribution, the base distribution itself, we really try and tie that towards...

Speaker Change: The free cash flow generation of the business and then what it is that we, you know, can and should be using that capital for. Now that we are, you know, at the three times leverage level, as I mentioned in my prepared remarks,

Michael Ure: Turning to the balance sheet, the sale of non-core assets throughout the first quarter and early in the second quarter enabled us to achieve our trailing 12 month net leverage ratio threshold of three times earlier than anticipated. In this leverage environment, we will continue to look for the most efficient ways to allocate capital to generate the best returns for our unit orders over time. Those options include investing capital to prudently expand the business.

Speaker Change: You know, that really opens up the possibility for us to be able to use that capital without having the need to focus as much on buybacks, whether they're debt or equity, around distribution growth, base distribution growth.

Speaker Change: Thank you.

Ludi: Thank you. Your next question comes from the line of Jeremy Tonet at JPMorgan Chase. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question comes from the line of Jeremy Tonet at JPMorgan Chase. Your line is now open.

Michael Ure: In order to bring more throughput onto our systems, we will continue to allocate capital to organic growth projects that grow volumes and meet our strict returns thresholds with a goal of driving adjusted EBITDA and free cash flow higher and enhancing our return on assets over time. And finally, increasing the base distribution. As our business grows and we generate incremental free cash flow, management in the board will continue to look at opportunities to grow the base distribution in line with the overall growth in our business.

Michael Ure: I just wanted to come back to Uinta, if I could, and as it relates to Chepita, just wondering how much weight in processing capacity there is right now. Just trying to think through, I guess, how much runway there is before there would need to be more investment.

Speaker Change: Hi, good afternoon. Hey, Jeremy.

Jeremy Tonet: I just wanted to come back to the Uinta, if I could, and as it relates to Chepita, just wondering how much latent processing capacity is there right now? Just trying to think through, I guess, how much runway there is before there would need to be more investment.

Michael Ure: We do have sufficient capacity as it relates today to be able to satisfy all of the needs with these incremental new commercial agreements that we've been able to achieve. So I wouldn't expect that it would require any plant expansion to be able to satisfy that growth that we're expecting and have contracted to bring on the system.

Speaker Change: We do have sufficient capacity as it relates today to be able to satisfy all of the needs with these incremental

Speaker Change: new commercial agreements that we've been able to achieve. So I wouldn't expect that that would require any plant expansion to be able to satisfy that growth that we're expecting and have contracted to bring on the system.

Michael Ure: If our business outperforms relative to our initial expectations in a given year, we also have the enhanced distribution framework in place to return even more capital to unit holders. We will remain opportunistic regarding unit buybacks and additional debt retirement. However, based on current market conditions and our net leverage ratio of three times, we do not expect these options to be the most efficient ways to allocate capital.

Michael Ure: Got it, that's helpful. And then you listed a string of, you know, commercial wins here. And I was just kind of curious how capital intensive, I guess, these initiatives are, or is this just kind of, you know, very creative, filling up open capacity for the most part? Yeah.

Speaker Change: got it that's helpful and then you listed a string of you know commercial wins here and just kind of curious how capital intensive I guess these initiatives are or is this just kind of um you know very creative filling up open capacity for the most part

Michael Ure: Yeah, highly accretive from that standpoint. There is some capital, but it's far more limited capital to be able to satisfy these commercial agreements. So we're really excited to be able to utilize some of the latent capacity that we have in those areas. Like I said, we were always believers that those volumes would come, and now we're seeing some of that progress. We're really, really happy with the operational efficiencies that we've been able to drive and obviously focus on our customers, which is why we believe, in part, these new deals were able to come onto the system. But, for the most part, highly accretive, minimal capital to be able to satisfy these new agreements.

Kristen Schultz: With that, I will turn the call over to Kristen to discuss our operational and financial performance. Thank you, Michael, and good afternoon, everyone. Our reported second quarter natural gas throughput was relatively flat on a sequential quarter basis. Primarily due to strong throughput growth in the Delaware, D.J, and Powder River basins, offset by decreased throughput from the sale of the Marcellus gathering system early in the second quarter. Our natural gas throughput from our operated assets increased by 3% on a sequential quarter basis.

Speaker Change: Yeah, highly accretive from that standpoint. There is some capital, but it's far more limited capital to be able to satisfy these commercial agreements. So we're really excited to be able to utilize some of the latent capacity that we had in those areas. Like I said, we were always believers that...

Michael Ure: Got it. Very helpful.

Speaker Change: You know, those volumes would come, and now we're seeing some of that progress. We're really, really happy with...

Speaker Change: The operational efficiencies that we've been able to drive and obviously focus on our customers, which is why we believe, in part, these new deals were able to come onto the system. So, but for the most part, you know, highly creative, minimal capital to be able to satisfy these new agreements.

Kristen Schultz: While a reported crude oil and NGL throughput declined by 9% on a sequential quarter basis as a result of equity investment divestors completed during the first quarter, our crude oil and NGL throughput from our operated assets. We increased by 6% on a sequential quarter basis due to strong throughput growth in Delaware, D.J, and Powder River basins. Produced water throughput decreased by 4% on a sequential quarter basis due to fluctuations in produced water used for recycling activities and upstream operations of our producers.

Michael Ure: Just last one, if I could, real quick here. I mean, we haven't seen this number of, you know, commercial wins in one quarter. Anything that kind of fed into it now? Do you see more opportunities like this? Just trying to get a better view of the backdrop here.

Speaker Change: Got it. Very helpful. Just last one, if I could, real quick here. I mean, we haven't seen, I can't recall this number of commercial wins in one quarter. Anything that kind of fed into it now? Do you see more opportunities like this? Just trying to get a better view of the backdrop here.

Michael Ure: You know, it comes a little bit in waves. Obviously, the team, I can tell you, is as energized now as they've ever been about getting new transactions coming online. So I would say that the hope is that you can sort of replicate some of these successes every quarter. But as it happens, you know, the transactions themselves take some time to bring into our system. So, again, there is a lot of energy around it, a lot of excitement.

Speaker Change: You know, it comes a little bit in waves. You know, obviously, the team, I can tell you, is as energized now as they've ever been about getting new transactions coming online. So, I would say that the hope is that you can sort of replicate some of these successes every quarter. But as it happens, you know, the transactions themselves take some time to bring onto our system. So, again, a lot of energy around it, a lot of excitement. We have a phenomenal commercial team that's out there trying to look for transactions all the time. But I certainly didn't expect this number of commercial deals every quarter. I would hope for it, but we shouldn't expect that.

Kristen Schultz: Our second quarter per MCF adjusted growth margin for natural gas assets was relatively flat quarter over quarter and we expect our third quarter per MCF adjusted growth margin to be in line with the second quarter. Our second quarter per barrel adjusted growth margin for our crude oil and NGL assets increased by 4% compared to the prior quarter. This was primarily due to the sale of our interest in the white dorn and saddlehorn pipelines in the first quarter, both of which had a lower than average per unit margins as compared to our other crude oil and NGL assets and increased throughput in the Delaware basin.

Michael Ure: We have a phenomenal commercial team that's out there trying to look for transactions all the time. But I certainly don't expect this number of commercial deals every quarter. I would hope for it, but we shouldn't expect that.

Kristen Schultz: We expect our third quarter per barrel adjusted growth margin to be in line with the second quarter. Our second quarter per barrel adjusted growth margin for our produced water assets was also relatively flat quarter over quarter and we expect our third quarter per barrel adjusted growth margin to be in line with the second quarter. During the second quarter, we generated net income attributable to limited partners at $370 million and adjusted EBITDA at $578 million.

Michael Ure: Got it. That's helpful. I'll leave it there. Thanks.

Speaker Change: Got it. That's helpful. I'll leave it there. Thanks. Thanks, Selman.

Ludi: Thank you. The next question comes from the line of Spiro Dounis at Citi. Your line is now open.

Speaker Change: Thank you. Next question comes from the line of Spiro Dounis at Citi. Your line is now open.

Michael Ure: Thanks, operator. Afternoon, team.

Spiro Dounis: Thanks operator. Afternoon team. I just wanted to start maybe with the DJ if we could. I guess as we understand it, Oxy's been pretty active there so far this year, but I think is the way it works with MVCs. We're maybe not seeing it show up on your side as much and so I'm just curious.

Michael Ure: I just want to start maybe with the DJ, if we could. I guess, as we understand it, Oxy's been pretty active there so far this year, but I think that's the way it works with MVCs. We're maybe not seeing it show up on your side as much, and so I'm just curious, any sense of how close you are to seeing the torque from that volume ramp?

Kristen Schultz: Related to the first quarter, our adjusted growth margin decreased by $9 million. This decrease was mostly driven by the sale of the Marcellus gathering system and the equity investment partially offset by higher throughput and profitability from the Delaware DJ and Powder River, basin. Our adjusted EBITDA decreased sequentially by 5% or $30 million due to the decrease in adjusted growth margin that I just mentioned, increased operation of maintenance expense and more normalized property in other taxes.

Speaker Change: Any sense how close you are to seeing the torque from that volume ramp?

Speaker Change: Yeah, as it relates to, you know, crude in particular, we wouldn't expect that we'll exceed those MVCs for 2024, but to your point, they've been active out there, they've seen some incredibly positive results. That's part of the reason why we're seeing, you know, some of the real overperformance there in addition to the commercial agreements.

Kristen Schultz: If you recall in the first quarter we benefited from lower than anticipated costs which resulted in higher than expected adjusted EBITDA. Going forward we expect our operation of maintenance expense to trend modestly higher in the third quarter, primarily driven by increased throughput, easily higher utility costs and increased asset maintenance and repair expense. As a reminder, we expect seasonality associated with our utility expense in the summer months due to higher estimated electricity pricing and greater energy usage in conjunction with increased throughput.

Speaker Change: but in particular as it relates to the oil side, still below NBC levels expectations out through 2024.

Michael Ure: I got it. Okay, so we'll wait on that one. Second question, just going to the guidance, and sorry if I'm splitting hairs here a little bit, but you reaffirmed the top end of the range again, and it would seem as though some of these new agreements that you signed do have a benefit for 2024. So, I guess I'm just curious, were these agreements contemplated in that guide to get to that top end, or does this actually create a scenario where maybe you outperform the high end?

Speaker Change: Got it. Okay, so we'll wait on that one.

Speaker Change: Second question, just going to the guidance, and sorry if I'm splitting hairs here a little bit, but you reaffirmed the top end of the range again, and it would seem as though some of these new agreements that you signed do have a benefit for 2024. So,

Kristen Schultz: Turning to cash flow, our second quarter cash flow from operating activities told us $631 million, generating free cash flow of $425 million. Free cash flow after our first quarter 2024 distribution payment in May was $84 million. From a capital market's perspective as previously announced in the second quarter we opportunistically repurchased $135 million of senior notes through open market transactions, which has resulted in $150 million of total debt repurchases year to date, all at approximately 96% apart.

Speaker Change: I guess I'm just curious, were these agreements contemplated in that guide and getting to that top end or does this actually create a scenario where maybe you outperform the high end?

Michael Ure: Yeah, these will have some impact in 2024, but actually, the vast majority of the impact is in future periods. And so while they're incremental and hadn't been planned within our forecasts, really don't change where we sit as it relates to the guidance on a quarter-on-quarter basis. What it really does, though, is it gives us some really strong tailwinds as it relates to future periods, particularly in assets that we have some latent capacity out there. So really excited about what it does for some future periods with less of an impact in 2024.

Speaker Change: Yeah, these will have some impact in 2024, but actually the vast majority of the impact is in future periods. And so, while they're incremental, hadn't been, you know, planned within our forecasts.

Kristen Schultz: Finally in July we declared a base distribution of $87.5 per unit which was unchanged relative to our previous announcement in April and is payable on August 14th to unit holders of record as of August 1st. Based on our operated throughput performance to date and continued strong producer activity levels, we still expect average year-over-year throughput growth for all products in the Delaware Basin, DJ Basin and Powder River Basin. We still expect our portfolio wide average year-over-year throughput to increase by mid to upper teens percentage for natural gas, low teens percentage for crude oil and NGLs, and mid to upper teens percentage for produced water.

Speaker Change: really doesn't change, you know, where we sit as it relates to the guidance on a quarter-on-quarter basis.

Speaker Change: What it really does, though, is it gives us...

Speaker Change: You know, some really strong tailwinds as it relates to future periods, particularly in assets that we had some latent capacity out there. So, really excited about what it does for us in future periods with less of an impact in 2024.

Michael Ure: Got it. I'll leave it there. Thanks, Michael.

Speaker Change: Got it. I'll leave it there. Thanks, Michael. Thanks, Spiro.

Ludi: Thank you. The next question comes from the line of Manav Gupta at UBS. Your line is now open.

Speaker Change: Thank you. The next question comes from the line of Manav Gupta at UBS. Your line is now open.

Michael Ure: Good afternoon. I basically wanted to discuss the agreements you're doing with PSX. Looks like you amended an agreement with DCP, which is now PSX, and then looks like there is additionality there, you know, incremental volumes coming probably in 2026. So, can you talk about the opportunities now that DCP, PSX, and PSXP have all become PSX? Are there more opportunities to do business with this company?

Kristen Schultz: Focusing on our financial guidance with the throughput growth I just described, we still expect to be towards the high end of our previously disclosed adjusted EBITDA and free cash flow guidance ranges of $2.2 to $2.4 billion and $1.05 to $1.25 billion for the year, respectively. Additionally, we still expect our 2024 capital expenditure guidance to range between $700 and $850 million, implying a midpoint of $775 million. We continue to expect just over 80 percent of our capital budgets to be spent in the Delaware Basin, the majority of which is expansion capital for the North Loving Plant construction, an additional system expansion to facilitate continued throughput growth.

Manav Gupta: Good afternoon. I basically wanted to discuss...

Speaker Change: The agreements you're doing with PSX looks like you amended an agreement with DCP, which is now PSX, and then looks like there is additionality there, you know, incremental volumes coming probably in 2026. So can you talk about, you know, the opportunities?

Speaker Change: As DCP, PSX, and PSXP have all become PSX, are there more opportunities to do business with this company?

Michael Ure: Yeah, actually, we're really, really proud of the relationship that we've had historically with both DCP as well as P66. So I would say that this relationship has been something that we've had for a really long time. In fact, the extension of one of these agreements is one that we entered into about five years ago. And so I haven't really seen, and I wouldn't attribute any of these new agreements to a changeover in ownership. It's just been a strong relationship we've had for some time.

Speaker Change: Yeah, so actually, we're really proud of the relationship that we've had historically with both PCP as well as P66.

Speaker Change: So, I would say that this relationship has been something that we've had really for a long time. In fact, the extension of one of these agreements is...

Kristen Schultz: As previously mentioned, we expect to allocate incremental capital to the Powder River, DJ and UN to Basin to facilitate throughput growth over the next 18 months. In the Powder River Basin, several existing customers plant accelerate completion activities as we exit 2024. Thus, we are allocating incremental capital in 2024 and 2025 to expand existing compression facilities and to account for incremental well-connected. In the DJ Basin, we expect to invest incremental capital in 2025 to support the new and extended agreements with still 66.

Speaker Change: One that we entered into about five years ago. And so I haven't really seen or I wouldn't attribute, you know, any of these new agreements to a changeover in ownership. It's just been a strong relationship we've had for some time.

Michael Ure: Okay, and how should we think about volumes and margins now that Mentone 3 is in service, and what's the ramp at North Loving plant looking like? Thank you. Yeah, North Loving is still expecting.

Speaker Change: Perfect. And how should we think about volumes and margins that, you know, Mentone 3 is in service, and how is the ramp at North Loving Plant looking like? Thank you.

Michael Ure: Yeah, North Loving is still expecting to be on time and on budget for Q1 2025. As we look to margins, you know, for the third quarter, we would expect margins for the third quarter to be relatively in line with the second quarter.

Speaker Change: Yeah, North Loving still expecting to be on time and on budget for Q1 2025. As we look to margins, you know, for the third quarter, we would expect margins for the third quarter to be relatively in line with the second quarter.

Kristen Schultz: And in the UN to Basin, based on our commercial success, connecting Kinder Morgan's ultimate pipeline and with the shippers on Williams Mountain West pipeline expansion. We are allocating incremental capital predominantly in 2025 to expand pipeline connections, increase existing compression capacity, and to expand crude oil stabilization capacity. Facility. Our full-year-based distribution guidance of at least $3.20 per unit remains unchanged. We will continue to evaluate the base distribution on a quarterly basis influenced by the health and growth trajectory of our business. As a reminder, any potential enhanced distribution payment in 2025 will be based on our full-year 2024 financial performance, governed by a year and 2024 leverage threshold of three times, and subject to the board's discretion.

Speaker Change: Thank you.

Ludi: Thank you. The next question comes from the line of Neil Mitra at Bank of America. Your line is now open.

Speaker Change: Thank you. The next question comes from the line of Neil Mitra at Bank of America. Your line is now open.

Michael Ure: Hi, thanks for taking my question. I wanted to understand the processing needs beyond North Lobbing. I understand there's a lot of interruptible volumes that you're offloading there. So, when you think about offloading versus processing needs, could you maybe quantify how much capacity you have for offloads or the timing of when those contracts end? And then, would you build a new processing plant if you had enough interruptible volumes that you think it could underwrite the plant?

Neil Mitra: Hi, thanks for taking my question. I wanted to understand the processing needs.

Speaker Change: Past North Lobbing, understand there's a lot of interruptible wallings that you're offloading there. So when you think about...

Speaker Change: offloading versus processing needs. Could you maybe quantify how much capacity you have for offloads or timing of when those contracts end? And then would you build a new processing plant if you had...

Michael Ure: I'll now turn the call back over to Michael. Thank you, Kristen.

Michael Ure: I would like to highlight that we will be releasing our annual Sustainability Report in the coming weeks, which will detail our 2023 Sustainability accomplishments. This report highlights our successful attainment of our 2023 sustainability goals, which included targeting and implementing systems and processes to monitor our GHG emissions, safety culture, and community volunteering efforts, as well as additional details on all of our environmental, social, and governance practices. Once available, I encourage you to read more about our 2023 accomplishments in the report, and we look forward to building on this momentum in the years ahead as we continue to advance energy by enhancing the sustainability of our operations.

Neil Mitra: enough interruptible volumes that you think it could underwrite the plant?

Michael Ure: Yeah, thanks, Neil. It was a good question. So the way that we think about interoperable volumes, generally speaking, is that if we don't have existing capacity available, then, you know, that's when we'll try and use offloads to pay to take some of that interoperable volume. And when it is that we do receive commitments, that's when we try and tie our long-term capital with the long-term commitment of our customers. And that helps us get more comfortable with the investment itself.

Neil Mitra: Yeah, thanks Neal, good question. So the way that we think about

Neil Mitra: interoperable volumes generally speaking is that we if we don't have existing capacity available then you know that's when we'll try and use offloads to pay to take some of that interoperable volume. When it is that we do receive commitments that's when we try and tie our long-term capital with the long-term commitment of our customers and that helps us get much more comfortable with the investment itself.

Michael Ure: Before we open it up for Q&A, I would like to highlight a few key points and reiterate why West remains a differentiated and attractive investment opportunity. Since becoming a standalone organization, we have worked hard to grow the business while greatly improving the financial position of the partnership. We have achieved record-operated throughput for several quarters, which has been driven by our increasing asset operability, and continued strong activity levels from our producing customers.

Michael Ure: You know, as we sit here today, we do have some offloads, and that's really bridging those interruptible volumes until we get North Loving online. Once North Loving comes online, then we'll bring those, you know, onto our system.

Speaker Change: You know, as we sit here today, we do have, you know, some offloads, and, you know, that's really bridging those interruptible volumes to when we get North Loving online. Once North Loving comes online, then we'll bring those, you know, onto our system. I guess it depends a little bit in degrees and confidence level on the interruptible side. You know, if we had, you know, significant excess interruptible volumes that would justify a plan under the, you know, the, you know, conservative assumptions that we might apply to those volumes coming through our system, then it could justify it. But historically, that's not been the way that we've done it. We've done it more to align our long-term capital with the long-term commitments of our customers.

Michael Ure: These strong throughput numbers are expected to result in record-adjusted EBITDA and free cash flow this year. And these improving trends over the past few years have put us in a position to reduce leverage and to return even more capital to stakeholders. We did this while maintaining strict returns thresholds for expansion capital spending, which drove increases in return on assets to upper double-digit territory compared to an average of approximately 13 percent for our midstream peers.

Michael Ure: I guess it depends a little bit on the degrees and confidence level on the interruptible side. You know, if we had, you know, significant excess interruptible volumes that would justify a plan under the, you know, the, you know, conservative assumptions that we might apply to those volumes coming through our system, then it could justify it. But historically, that's not been the way that we've done it. We've done it more to align our long-term capital with the long-term commitments of our customers.

Michael Ure: We accomplished all of this while paying approximately $3.5 billion in base and enhanced distributions, reducing $943 million of net debt, and repurchasing just over $1.1 billion of West units, or approximately 15 percent of the unaffected unit count all since early 2020. This combination of efforts has culminated in leading unit holder returns and total capital return yield for West unit holders relative to our midstream peers, the S&P 500 index, and the S&P 500 energy index.

Michael Ure: Okay, perfect. Thanks for the answer. The second question pertains to the commercial ones that you had in Delaware for the quarter. Could you maybe walk through an offering of gas gathering, crew gathering, and water if you're able to bundle some services? Excuse me, and that gave you an advantage in procuring some of these contracts.

Speaker Change: i

Speaker Change: Okay, perfect. Thanks for the answer. Second question pertains to the commercial ones that you had in the Delaware for the quarter. Could you maybe walk through offering, you know, gas gathering, crew gathering, and water if you were able to bundle some services?

Speaker Change: Excuse me, and that gave you an advantage in procuring some of these contracts.

Michael Ure: Yeah, so these contracts actually were not necessarily related to two-bundling. They're just a one product, you know, set of contracts that we were able to achieve in these particular areas. We do see, however, in the Permian in particular, great value in us being able to, you know, gain new customers on either the water or the gas side, and that has enabled us to differentiate the way that we operate, and as customers get much more comfortable with our area, our manner of operating, then it has resulted in incremental new volume streams onto the system. So, in West Texas, that's definitely been employed as it relates to For the most part, these are just, you know, single product contracts that we've added onto. Got it.

Speaker Change: Yeah, so these contracts actually were not necessarily related to 2 Bond Wing, they're just a one product, you know, set of

Michael Ure: Focusing on the distribution yield, West still offers a very compelling investment opportunity when comparing its yield to the average yield of all sub-sectors within the S&P 500. In fact, West offers more than double the average yield of any sector within the S&P 500 index, and West continues to maintain the highest distribution yield amongst our midstream peers. Clearly, West continues to provide one of the strongest tax-deferred investment opportunities, not only within the midstream space, but relative to all sub-sectors of the S&P 500.

Speaker Change: of contracts that we were able to achieve in these particular areas. We do see, however, in the Permian in particular, great value in us being able to, you know, gain new customers on either, you know, the water or the gas side. And that has enabled us to differentiate the way that we operate. And as

Speaker Change: Customers get much more comfortable with our area, our manner of operating than it has resulted in incremental new volume streams onto the system. So in West Texas, that's definitely been employed as it relates to these new customer contracts. For the most part, these are just...

Michael Ure: Finally, from a valuation perspective, the current average MLP valuation still trades at approximately 8.5 times, a discount of just over 5 times compared to the average MLP valuation from 2011 through 2016. Meanwhile, balance sheets continue to strengthen. Free cash flow continues to grow, and the future business prospects of the industry remain strong. Also, the average current distribution yield remains just over 9 percent compared to the average MLP distribution yield of just under 7 percent from 2011 through 2016, a time when midstream MLP's generated negative free cash flow, and leverage was increasing.

Speaker Change: You know, single product contracts we've entered into.

Michael Ure: Got it. I really appreciate the call. Thank you.

Speaker Change: Got it. Really appreciate the callers, thank you. Yeah, thanks, Bill.

Ludi: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. Your next question comes from the line of Zach VanEfferen at TPH. Your line is now open.

Speaker Change: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad.

Speaker Change: Your next question comes from the line of Zack VanEfferen at TPH. Your line is now open.

Michael Ure: Hey guys, thanks for taking my question. Just a quick one on the contract extension with PSX or DCP. Was that at the same rate, and it was just a length extension, or were there any changes to the fixed rate there?

Zack VanEfferen: Hey guys, thanks for taking my question. Just a quick one on the contract extension with PSX or DCP. Was that at the same rate and it was just length extension or was there any changes to the fixed rate there?

Michael Ure: We continue to argue that the new MLP model is deserving of evaluation re-rate, especially when you take into account the corporate tax burden that sea corpse in the midstream space and other sectors of the economy will face over the coming years. There is no doubt that as net operating losses are exhausted, the current tax burden faced by sea corpse will result in less capital available for unit older returns, which continues to present a very compelling investment opportunity for West and the MLP space.

Michael Ure: Yeah, we typically, thanks for the question, Zack, we typically don't talk about contract-specific items as it relates to, you know, any contract that we enter into for various reasons. What I would say, though, is that, again, this highlights the wonderful partnership that we have with them. We think a lot of them overall, and obviously, this series of agreements, you know, highlights the strong manner in which we've been able to work

Speaker Change: Yeah, we typically, thanks for the question Zack, we typically don't don't talk about contract specific items.

Speaker Change: as it relates to any contract that we enter into for various reasons.

Speaker Change: What I would say, though, is that, again, this highlights the wonderful partnership that we have with them. We think a lot of them overall, and obviously this series of agreements, you know, highlights the strong manner in which we've been able to work together.

Michael Ure: To close, I would like to thank the entire West workforce for all of their hard work and dedication. I would also like to thank all of the teams within our organization that are working to finalize our 2023 Sustainability Report.

Michael Ure: Gotcha, that makes sense. And then maybe a bit of a hypothetical one here, but on M&A, you know, with PXX going through a bit of a transition, if those DCP assets were ever to hit the market, would you guys consider that to be too high of a concentration for DJ as far as FTC risk? Or do you think that's something that they would allow? Obviously, very hypothetical, but just looking at location and opportunity and how much contracts you already have with them.

Speaker Change: Gotcha, that makes sense and then maybe a bit of a hypothetical one here, but on M&A

Michael Ure: The year is off to a strong start, and I look forward to updating you on our third quarter results in November.

Speaker Change: You know, with PSX going through a bit of a transition, if those DCP assets were ever to hit the market, are you guys, would that be too high of a concentration that you'd pay as far as FTC risk, or?

Loody: With that, we will open the line for questions. Thank you. At this time, I would like to remind everyone in order to ask a question, or then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: Do you think that's something that they would allow? Obviously very hypothetical, but just looking at location and opportunity and how much contracts you already have with them.

Michael Ure: Very hypothetical but very specific, Zack. I can't actually comment on any, you know, specific transaction, hypothetical or otherwise. As it relates to M&A, I just reiterate, you know, kind of what our position is, which is, you know, we're looking for ways that we can, you know, add some creative opportunities to us to continue to, you know, emphasize what it is that we believe that we do differently from a customer service standpoint and allow those types of transactions to enhance the returns to the enterprise, which we've been really focused on, you know, from the very beginning of becoming a standalone enterprise.

Gabe Maureen: Your first question comes from the line of Gabe Maureen at Mizzouho. Your line is now open.

Speaker Change: Very hypothetical, but very specific, Zack. I can't actually comment on any, you know, specific transaction, hypothetical or otherwise. The related seminar just reiterates, you know, kind of what our position is, which is, you know, we're looking for ways that we can, you know, add some creative opportunities to us to continue to, you know, emphasize what it is that we believe that we do differently from a customer service standpoint and allow those types of transactions to enhance the returns to the enterprise, which we've been really focused on, you know, from the very beginning of becoming a standalone enterprise.

Gabe Maureen: Good afternoon, everyone. I just wanted to ask about the growth that you're seeing in the DJ and the UNTA. It sounds like whether medium-term or long-term using up the rest of your slot capacity there. How do you think about potentially growing beyond using up that capacity? Is that something you're planning for right now and just managing growth just in those basins where I don't think investors were expected to see that six or 12 months ago?

Michael Ure: Gabe, this is Michael. We're incredibly excited about the new volumes that we're expecting to come on to the system, both of the DJ and the UNTA basins. We're always big believers in those basins historically and definitely feel that way today.

Michael Ure: Perfect. I appreciate that. Thanks, guys.

Zack VanEfferen: Perfect, I appreciate that. Thanks guys. Thank you.

Ludi: Thank you. There are no further questions at this time. Mr. Orr, I turn the call back over to you.

Speaker Change: Thank you. There are no further questions at this time. Mr. Orr, I turn the call back over to you.

Michael Ure: Thank you very much. Thanks, everyone, for joining us. This marks the five-year anniversary of my appointment to this role. I'm so proud of what this organization has been able to achieve, the incredible benefits and abilities that we've been able to demonstrate to the market, the debt reduction, the repurchase of units, the increase in distribution, and the new customer wins. Our focus on our customers has been remarkable overall. I'd also like to congratulate Danny Holderman on his appointment as Chief Operating Officer.

Michael Ure: As we look at it now, no expectations or plans in terms of broad expansions within those areas. Obviously, we will continue to have capital expenditures related to maintenance, impression, and welcome X, but currently not projecting to have any major projects in those areas. More about utilization of existing assets and capacity out there, which are really excited to be able to service our customers in those areas.

Mr. Orr: Thank you very much. Thanks everyone for joining. This marks the five-year anniversary of my appointment to this role. I'm so proud.

Speaker Change: of what this organization has been able to achieve, the incredible benefits and abilities that we've been able to demonstrate to the market, the debt reduction, the repurchase of units, the increase in the distribution, the new customer wins.

Gabe Maureen: Thanks, Michael.

Speaker Change: Our focus on our customer has been remarkable overall. I'd like to also congratulate Danny Holderman on the appointment as Chief Operating Officer.

Michael Ure: Danny's an excellent leader, and we really look forward to what he'll continue to do as we focus on operational excellence and customer service. I want to thank the U.S. people for their continued efforts in the pursuit of excellence overall. And with that, we thank you all for joining us.

Gabe Maureen: And then maybe if I can sort of follow up to that question on secondary basins and what you're seeing out there as far as M&A, you know, you're able to get meritige that are really nice multiple.

Speaker Change: Danny's an excellent leader, and we really look forward to what he'll continue to do as we focus on operational excellence and customer service. I want to thank the West people for their continued efforts in the pursuit of excellence overall. And with that, we thank you all for joining.

Gabe Maureen: Are you still seeing that differential out there, I guess, outside for assets outside the Permian?

Ludi: This concludes today's conference call. You may now disconnect.

Gabe Maureen: Is that of interest, particularly now that you've seen, I guess, some purking up and growth in some other basins?

Michael Ure: Yeah, for us, our focus really has changed from an M&A standpoint. We're really looking at ways in which we can acquire assets that we can differentiate what it is that is already happening within those assets. And so that primarily means that they're in and around areas where we currently operate.

Speaker Change: This concludes today's conference call. You may now disconnect.

Michael Ure: And so as we think about M&A, it's about enhancing, you know, typically it's about enhancing, you know, areas in which we currently operate and can provide a differentiated set of synergies related to the opportunity itself. Great.

Gabe Maureen: And then just if I could squeeze one last thing, one end, you mentioned some additional MVCs in the Delaware. Could you maybe quantify some of that? And also within the bigger picture of kind of where you stand, third party business versus oxy, what those MVCs and how they shift things for you? Yeah. So, you know, we are able to, you know, get MVCs that relate to contracts that we're getting. And that's, you know, irrespective of the counter party.

Gabe Maureen: And so, for us, again, we're really focused on returns overall. We want to make sure that if we're going to spend any capital that we're able to do that, the level that, you know, satisfies those returns thresholds where the MVCs come into play. And so, as you've seen in the transactions that are the new commercial deals that we've been out, we've been able to do that with MVCs, you know, really across the board. And those are, are not with related parties. Okay.

Gabe Maureen: Thanks very much.

Keith Stanley: Thank you.

Keith Stanley: Your next question comes from the line of Keith Stanley at Wolf Research. Your line is now open. Hi. Good afternoon. So, just touching back on, I guess, catbacks. In the past, you've talked about a meaningful year-rear decline in 2025 catbacks. Any updated comments you'd make there given the need to invest some in growth in the DJP or B and UNTA basins. And then, separately, any progress on contracting for a new plan in the Permian or there's still a lot to do on that before moving forward?

Keith Stanley: Yeah. So, we would expect that there will be a step down. There would be a step down in capital for 2025. Obviously, we're excited about, you know, the new commercial agreements, which, you know, will require a little bit of capital in order to satisfy those agreements and make our customers happy. As it relates to new plans in the Permian, no plans to increase flight capacity in the Permian as we say here today. So, no change from previous comments that we've made on increasing capacity there.

Keith Stanley: Thanks for that. Second question. So, leverage you got to your three times target now. Does that impact how you think about the timing for another distribution increase, or is that more tied to growth in free cash flow in the business? Yeah. It's a little bit of both. Obviously, we're excited to be able to get to that level earlier than expectations. As we think about base distribution, the base distribution itself, we really try and tie that towards the free cash flow generation of the business.

Keith Stanley: And then, what it is that we, you know, can and should be using that capital for, now that we are, you know, at the three-time, leveraged level, as I mentioned in my, my prepared remarks, you know, there really opens up the possibility for us to be able to use that capital without having the need to focus as much on buybacks, whether they're debt or equity, around distribution, growth, base distribution growth. So, thank you.

Keith Stanley: Thank you.

Jeremy Tonet: Your next question comes from the line of Jeremy Tonet at JP Morgan Chase. Your line is now open. Hi, good afternoon. Hey, Jeremy. I just wanted to come back to the winter if I couldn't and as I was really to Chappita, just wondering how much weight in processing capacity is there right now? I'm just trying to think through, I guess, how, you know, runway, how much runway there is before there would need to be more investment?

Jeremy Tonet: We do have sufficient capacity as it relates today to be able to satisfy all of the needs with these incremental new commercial agreements that we've been able to achieve. So, I wouldn't expect that that would require any plant expansion to be able to satisfy that growth that we're expecting and have contracted to bring on the system. Got it. That's helpful. And then you listed a string of, you know, commercial winds here and just going to curious how capital intensive, I guess, these initiatives are or is this just kind of a very creative filling up open capacity for the most part.

Jeremy Tonet: Yeah, highly creative from that standpoint, there is some capital, but it's far more limited capital to be able to satisfy these commercial agreements. So we're really excited to be able to utilize some of the latent capacity that we had in those areas. Like I said, we were always believers that, you know, those volumes would come. And now we're seeing some of that progress. We're really, really happy with the operational efficiencies that we've been able to drive and obviously focus on our customers, which is why we believe in part these new new deals were able to come on to the system.

Jeremy Tonet: So, but for the most part, you know, highly creative, minimal capital to be able to satisfy these new agreements. Got it. Very helpful. Just last one if I could real quick here. I mean, we haven't seen, I can't recall this number of commercial winds in one quarter. Anything that kind of fed into it now, do you see more opportunities like this just trying to get a better view of the backdrop here?

Jeremy Tonet: You know, it comes a little bit in ways. You know, obviously the team I can tell you is as energized now as they've ever been about getting new transactions coming online. So I would say that the hope is that you can sort of replicate some of these successes after a quarter, but as it happens, you know, the transactions themselves take some time to bring on to our system. So again, a lot of energy around it, a lot of excitement.

Jeremy Tonet: We have a phenomenal commercial team that's out there trying to look for transactions all the time. But I certainly certainly expect this number of commercial deals every quarter. I would hope for it, but I shouldn't we shouldn't expect that. Got it. That's helpful. I'll leave it there. Thanks. Thanks, Herman.

Jeremy Tonet: Thank you.

Jeremy Tonet: Next question comes from the line of Spiro Donas at city. Your line is now open. Thanks, operator. Afternoon team. Just want to start maybe with the DJ if we could. I guess as we understand it, I've actually been pretty active there so far this year, but I think is the way it works with MVCs or maybe not seeing it show up on your side as much. And so you can some just curious any sense how close you are to seeing the torque from that volume ramp.

Jeremy Tonet: Yeah, is it related to, you know, Crude in particular, we wouldn't expect that we'll exceed those MVCs for 2024, but to your point, they've been active out there. They've seen some incredibly positive results. That's part of the reason why we're seeing, you know, some of the real overperformance there in addition to the commercial agreements. But in particular, it relates to the oil side still below MVC levels. So we'll wait on that one.

Jeremy Tonet: Second question, just going to the guidance. Sorry if I'm splitting hairs there a little bit, but you read from the top end of the range. Again, and it would seem as though some of these new agreements that you signed do have a benefit for 2024. So I guess I'm just curious for these agreements contemplated in that guide and getting to that top end, or does this actually create a scenario where maybe I perform the high end.

Jeremy Tonet: Yeah, these will have some impact in 2024, but actually the vast majority of the impact is in future periods. And so while their incremental hadn't been planned within our forecast, really doesn't change, you know, where we sit as it relates to the guidance on a quarter on quarter basis. What it really does though is it gives us, you know, some really strong tailwinds as it relates to future periods, particularly in assets that we have some latent capacity out there. So really excited about what it does for some future periods with less of an impact in 2024. Get it. I'll leave it there. Thanks, Michael. Thanks, girl.

Jeremy Tonet: Thank you.

Manav Gupta: The next question comes from the line of Manaus Gupta at EBS. Your line is open. Good afternoon. I basically wanted to discuss the agreements you're doing with PSX. Looks like you amended a agreement with DCP, which is now PSX and then looks like there is a sexuality there, you know, incremental volumes coming probably in 2026. So can you talk about, you know, the opportunities as DCP, PSX and PSX, they have all become PSX are there more opportunities to do business with this company.

Manav Gupta: Yeah, so actually this is really, really, really proud of the relationship that we've had historically with both PCP as well as PS66. So I would say that this relationship has been something that we've had really for a long time. In fact, the extension of one of these agreements is one that we entered into about five years ago. And so I haven't really seen, I wouldn't attribute, you know, any of these new agreements to a changeover in ownership. It's just been a strong relationship with that for some time.

Manav Gupta: So if I can, and how should we think about volumes and margins that, you know, mental trees and service and, and what, how's the ramp at North loving plant looking like? Thank you. Yeah, North loving still expecting to be on time and on budget for Q1 2025. As we look to margins, you know, for the third quarter, we would expect margins for the third quarter to be relatively in line with with the second quarter. Thank you.

Neil Mietra: The next question comes from the line of Neil Mietra at Bank of America. Your line is now open. Hi, thanks for taking my question. I wanted to understand the processing needs past north loving. Understand, there's a lot of interruptible wallings that you're offloading there. So when you think about offloading versus processing needs, could you maybe quantify how much capacity for offloads or timing of when those contracts end?

Neil Mietra: And then would you build any processing plant if you had enough interruptible wallings that you think it could underwrite the plant? Yeah, thanks, Neil. Good question. So the way that we think about interoperable volumes generally speaking is that we, if we don't have existing capacity available, then you know, that's when we'll try and use offloads to take some of that interruptible wallings. That's when we do receive commitments. That's when we try and tie our long-term capital with the long-term commitment of our customers.

Neil Mietra: And that helps us get more comfortable with the investment itself. As we sit here today, we do have some offloads, and that's really bridging those interruptible volumes until when we get north loving online. Once north loving comes online, then we'll bring those onto our system. I guess it depends a little bit in degrees and confidence level on the interruptible side. If we had significant access interruptible volumes that would justify a plant under the conservative assumptions that we might apply to those volumes coming through our system, then it could justify it. But historically, that's not been the way that we've done it.

Neil Mietra: We've done more to align our long-term capital with the long-term commitments of our customers. Okay, perfect. Thanks for the answer.

Neil Mietra: Second question pertains to the commercial ones that you had in the Delaware for the quarter.

Neil Mietra: Could you maybe walk through offering gas gathering, crew gathering, and water if you were able to bundle some services? Excuse me, and I gave you an advantage in preparing some of these contracts. Yeah, so these contracts, actually, we're not necessarily related to two-bond wind. They're just a one-product set of contracts that we were able to achieve in these particular areas. We do see, however, in the Permian in particular, great value in us being able to gain new customers on either the water or the gas side, and that has enabled us to differentiate the ways that we operate.

Neil Mietra: And as customers get much more comfortable with our manner of operating than it has resulted in incremental new volume strings onto the system. So in West Texas, that's definitely been employed to relate to these new customer contracts. For the most part, these are just single-product contracts that we've added into.

Neil Mietra: Got to really appreciate the colors. Thank you. Yeah, thanks.

Loody: Again, if you would like to ask a question, press store, then the number one on your telephone keypad.

Zack Everen: Your next question comes from the line of Zack Everen at TPH, the line is now open. Hey guys, thanks for taking my question. Just a quick one on the contract extension with PSX or DCP, was that at the same rate and it was just length extension or was there any changes to the fixed rate there? Yeah, we typically, thanks for the questions, Zack, we typically don't talk about contract specific items as it relates to any contract we enter into for various reasons.

Zack Everen: What I would say though is that, again, this highlights the wonderful partnership that we have with them, we think a lot of them overall, and obviously this series of agreements highlights the strong manner in which we've been able to work together. Gotcha, that makes sense, and then maybe a bit of a hypothetical one here, but on M&A, with PSX going through a bit of a transition, if those DCP assets were ever to hit the market, are you guys, would that be too high of a concentration that any day as far as FDC risk, or do you think that's something that they would allow?

Zack Everen: Obviously, very hypothetical, but just looking at location and opportunity and how much contracts you already have with them. Very hypothetical, but very specific, Zack. I can't actually comment on any specific transaction, hypothetical or otherwise. The release of M&A just reiterates what our position is, which is we're looking for ways that we can add some creative opportunities to us to continue to emphasize what it is that we believe that we do differently from a customer service standpoint and allow those types of transactions to enhance the returns to the enterprise, which we've been really focused on for the very beginning of becoming a standalone enterprise. Perfect. I appreciate that. Thanks, guys. Thank you.

Loody: There are no further questions at this time.

Michael Ure: Mr. Orr, I turn the call back over to you. Thanks very much. Thanks, everyone, for joining.

Michael Ure: This marks the five-year anniversary of my appointment to this role. I'm so proud of what this organization has been able to achieve, the incredible benefits and abilities that we've been able to demonstrate to the market, the debt reduction, the repurchase of units, the increase in the distribution, the new customer wins, our focus on our customer has been remarkable overall.

Michael Ure: I'd like to also congratulate Danny Holderman on the appointment as Chief Operating Officer. Danny is an excellent leader, and we really look forward to what he'll continue to do as we focus on operational excellence and excellence in customer service. I want to thank the West people for their continued efforts in the pursuit of excellence overall.

Michael Ure: And with that, we thank you all for joining.

Loody: This concludes today's conference call. You may now disconnect. Thank you.