Q3 2025 Western Midstream Partners LP Earnings Call - Post Earnings Q&A
As I said my vision for the parts of partnership is very much in line with the current strategy.
Because of my time on the board I was really a part of supporting the company's mission and strategy envision and all those things and certainly how we think about creating value for our unit holders and again those priorities as we've said many times and I'll continue to say are really executing on organic expansion opportunities focusing on accretive M&A.
Where we can find it I'll, probably say more than once we like to hold that M&A to a very high standard and I say risk adjusted because it's important to remember.
When we have organic growth opportunities, we typically have a much better insight and control over our risks and our returns and in M&A you, sometimes don't know what you get but in the case of Meritage. It was a textbook acquisition and validation of the company's strategy and how to find accretive M&A and execute and integrate it appropriately and then finally.
All of this really leads to probably the most important thing which is growing our base distribution over time and in line with the growth of the business. So all of these should sound very familiar to investors. We continue to look for ways to return capital to our unit holders at the same time tried this growth. So we have a sustainable business model over.
Speaker Change: And then of course maintain our strong investment grade ratings on the balance sheet. Thank you Oscar Kristen looking at our third quarter results can you give us a general overview and an update on what happened during the quarter and what we should expect for the remainder of the year.
Daniel: Sure Daniel.
The third quarter was another very strong corner for West we had strong customer service and our system Operability was about 98% despite doing quite a bit of maintenance activity and turnaround activity in our plants, our natural gas throughput increased by 1% quarter over quarter due to powder River basin graph and our seventh consecutive.
Daniel: A quarter of record natural gas throughput in the Delaware Basin our.
Crude and NGL volumes decreased by 2%, but this was primarily due to decreased to reflect in the D. J basin with the sale of the Lam said, our pipeline in Miami, and finally lower volumes from our equity investments.
Our produced water volumes increased 2% quarter over quarter, we had some of our producers taking volumes off the system for our recycling programs. These volumes will eventually make their way back onto the system, but it did cause our throughput to be a little bit lower than what we expected for the quarter because of our third quarter throughput activity.
Daniel: And then what we're seeing for the rest of the year, we actually lowered our year over year average throughput growth rates that we put into our slide deck, sorry produced water went from mid to upper teens to low double digit growth year over year, and our crude went from low teens to low double digits year over year. These changes were really.
On the margin, which is why we're still able to say that will be towards the high end of our adjusted EBITDA and free cash flow guidance ranges for the year from a financial perspective, our adjusted EBITDA was slightly below what we saw for Q2 because of the plant turnaround activity that we hired we experienced lower recoveries and with lower commodity prices.
Daniel: Says coupled with those lower recoveries, we didn't have quite as much adjusted gross margin. Additionally, there was a distribution payment from one of our JV is that we didn't receive this quarter that we expect to receive next quarter and as we've talked about many times, our opex was a little bit higher, especially during the second quarter and third quarter just from maintenance activity.
Daniel: Is that pick up during that time period.
Daniel: We're looking forward into Q4, we expect our adjusted EBITDA to tick back up as those turnaround activities have subsided and much of the maintenance work will have subsided as well. We also mentioned in our press release that we had executed an agreement pertaining to our Nevada, JV, where we essentially created a play.
Daniel: Within our plant type of structure. So we now have 100 million cubic feet a day of dedicated processing capacity that will become part of our Delaware Basin complex processing capacity in mid 2025.
Speaker Change: I know, we will provide our full outlook for 2025 in February but are there any early insights you can give us into next year.
Speaker Change: Sure maybe just a few notes when we're looking at capital for 2020 five we're expecting capital to be lower than it was in 2024, we're going to finish the vast majority of the construction on north loving this year for it to be ready to be placed in service in Q1 of 2025, So don't expect to have.
Speaker Change: Plant them.
Speaker Change: Which is a very large capital project impacting our capital budget, we do expect to have more spend in the pier B as we're building out that system more and as we talked about on prior calls we've had a lot of commercial successes up in the powder River basin more insight will come on the February call as it relates to EBITDA.
Speaker Change: But to provide a little clarity on what we're seeing right now in terms of throughput in 2025, when we look at the forecast that we've been receiving from our producers for next year, we expect the growth in the Delaware and DJ basins to moderate relative to what we've seen in 2023 and 2024, we've had a few years now of increased activity level.
Speaker Change: <unk> and incremental wells coming online and while activity is still very strong in those basins that steady activity is leading to more moderate growth rate. Additionally, when we look at our total portfolio growth our average year over year throughput increased from 2023 to 2024 and part due to the acquisition of Mary.
Speaker Change: It is midstream and so this year, we haven't had an acquisition like that is in fact, we've been divesting of our assets. So with that we won't be including 23000 barrels a day of crude oil and Ngls and we won't have 38 million cubic feet a day of natural gas throughput associated with those JV is that we divested of this year.
Speaker Change: Those volumes that are lost from those asset sales represent approximately $26 million of adjusted EBITDA in 2024 that will not repeat in 2025 with that over the next few months, we'll be receiving updated forecast from our producers as they continue to work through their budgets and their changes in the overall environment and these forecasts will allow us to provide.
Speaker Change: Further thoughts and guidance in February we're still really excited about 2025, we've had a lot of growth projects going on this year. The <unk> has been doing incredibly well, but just wanted to give a little bit of context of twenty-five relative to 2024, just because we did have such a large throughput increases in 24 because of the inorganic.
Speaker Change: He is an uptake in activity that we saw in prior years too. Thanks, Kristen Oscar would you in by reiterating west as capital allocation priorities going forward.
Speaker Change: Sure Daniel we've worked really hard over the past few years to grow the business prudently allocate capital improve the strength of our balance sheet and generate leading returns for our stakeholders in fact, since becoming an independent partnership we've reduced our net debt balances and lowered our leverage ratio considerably. We've also paid out almost $4 billion to unit.
Speaker Change: Holders through distributions and bought back over $1 billion of our common units were about 15% of the unaffected unit count.
Now that we are comfortably achieved our three times leverage target a little sooner than we expected we plan to continue focusing on the following three priorities organic growth accretive acquisitions, and increasing our distributions to unit holders regarding organic growth and this one is my favorite way to grow the business, we'll continue to work with our customers to support them.
Speaker Change: Projects that meet their needs and generate the returns our unit holders expect with reasonable payback periods organic growth tends to be lower risk acquisitions.
Speaker Change: That said, we continue to evaluate acquisitions that are accretive to our free cash flow and returns over time, such as the Meritage acquisition, we want to follow our customers, where they need us and we need to be able to add value as an owner to drive those returns even on a risk adjusted basis acquisitions are still held to a higher standard.
Speaker Change: And finally, the reason for our first two priorities is the most important one driving long term distribution growth. We have said and I continue to support we will grow our distribution in line with the overall growth in our business. If we are unable to find organic acquisition or other opportunities that can generate sufficient returns and long term free cash flow growth over time, we also have our.
Speaker Change: Enhanced distribution framework to return additional capital to unit holders as well as the ability to repurchase units.
Speaker Change: Oscar Kristen. Thank you both for joining us today for our listeners. If you have any additional questions. Please feel free to reach out to us our contact information is located in the Investor Relations section of our corporate website Western midstream dotcom.
Speaker Change: Uh huh.
Speaker Change: Yes.
Speaker Change: Yes.