Good day, everyone and welcome to the Western Gas Third Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] And please note that today's event is being recorded. I would now like to turn the conference over to Jon VandenBrand, Director of Investor Relations. Please go ahead with your presentation.

Thank you. I am glad you could join us today for Western Gas' third quarter 2018 conference call. I'd like to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. The accompanying slide deck and last night's earnings release contain important disclosures on forward-looking statements as well as the non-GAAP reconciliations. Please see the WES and WGP 10-Ks and other public filings for description of the factors that could cause actual results to differ materially from what we discuss today. Those materials are all posted on the Western Gas website at www.westerngas.com. Finally, I'd also like to highlight some of the additional health, safety and environmental for HSE disclosure we have provided on our website. Anadarko and Western Gas have always had a strong commitment to HSE and will continue to engage on these important topics. Now, I'd like to turn the call over to our CEO, Ben Fink. Ben?

Thank you, Jon, and Happy Halloween everyone. We are excited by our quarterly results with adjusted EBITDA and distributable cash flow of $314.5 million and $248.2 million, respectively. This robust sequential growth of 16% and 12% represents the beginning of the second half ramp that we promised at the beginning of the year. Third quarter coverage of 1.08 times has significantly expanded from the second quarter and our expectation of approximately 1.2 times coverage for both the fourth quarter of 2018 and full year 2019 remains unchanged. Our natural gas throughput was driven by strong growth in the Delaware Basin, which was supported by critical midstream infrastructure coming on line in the second and third quarters, as well as our large customers' pro-activity in securing takeaway out of the basin. Our Ramsey facility is currently running above nameplate capacity and we continue to see strong demand for our water services. We also saw continued volumetric growth in the DJ Basin, supported by the lowest in-basin line pressures and notably higher volumes in the Marcellus driven by increased drilling activity. This growth was partially offset by a decline in lower margin volumes at our Chipeta plant and at our Springfield gathering system where a part of the system was offline for over 20 days in September due to flooding from heavy rains. Our adjusted gross margin per Mcf of $1.03 was $0.08 higher than the second quarter as our margin normalized following last quarter's accrual of shutdown costs. The growth in our crude, NGL and produced water throughput was driven by a full quarter contribution from Whitethorn, as well as the ongoing volumetric ramp in our produced water gathering and disposal business. The sequential increase in our adjusted gross margin for crude, NGL and produced water assets of $0.20 to $1.76 was also a result of receiving a full quarter distribution from Whitethorn. As you saw in our release, despite the Mentone facility coming online slightly later than originally expected, our 2018 adjusted EBITDA midpoint and our distribution coverage expectations remain unchanged. We have also lowered the midpoint of our 2018 maintenance capital range, while keeping our total capital expenditures outlook unchanged. With respect to 2019, while we will release our official outlook later this year. There are two things we are comfortable sharing today. First, we expect significant organic growth in adjusted EBITDA of at least 20%; and second, our capital expenditures will significantly decline. We believe our unit holders are well served by this combination of significant cash flow growth and decreasing capital requirement. As always, we appreciate all your continued support. And with that operator, I'd like to open up the lines for questions.

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] And our first questioner today will be from Jeremy Tonet with JP Morgan. Please go ahead.

Good morning.

Good morning, Jeremy.

Congrats on the quarter and the 2019 guide there, 20% growth organically is pretty good number. I was wondering if you could build up at a bit more and kind of see how that trajectory might line up across the year, because it seems like you have some plants come up online over the course of the year. You have some JV interest, kind of come online towards the back half of the year. Is that a case where we can kind of see a steady ramp across the year or would you expect kind of back half of 2019 through – we waited higher than first half or any color that you can provide there?

I totally appreciate the question, Jeremy. You are just going to have to be a little patient with us. We'll give full 2019 guidance later this year and we'll talk about all the quarterly lumpiness and ramps during that time. But right here right now, I can just tell you that everything seems to be trending the right way.

Fair enough. Pivoting to a smaller part of the story in Granite, you know the Eagle Ford is not the main drivers here, but with Springfield it was down a bit with kind of some of the activities being noted there. But just wanted to get a sense for how you see activity behind your system there and kind of with most updated thoughts as far as the outlook?

Okay, sure. And the quarter's volume sorry, as we mentioned it's really kind of weather driven. What we are dealing when the Eagle Ford is an operator who is an Eagle Ford pure play. And I'll remind you when we actually bought that asset in beginning of 2016, we thought the volumes were going to be in decline for at least three years, and then we got back to sequential growth less than two years after that. So, we are playing with house money. I love what the operator is doing. I love the steps that it's taking to improve its business and improve efficiencies. And I expect we'll get back to sequential growth in the near future.

That's helpful. Thanks. And just one thing, you know as far as what the latest size of the inventory of drop down upstairs would be, there's been a lot of spend APC and clearly with the level of organic growth that you guys have in front of you, there is no need for drops in the foreseeable future, but just want kind of mark that for a model.

Sure. And to be clear this is not really guide that we gave this tease that we gave, it does not assume any drop down of any kind. Just like the west portfolio, the Anadarko midstream portfolio is the high growth portfolio as you would expect it would be with all the capital being spent on it and the relative immaturity of some of those assets. And we'll give an EBITDA range just like we did this year when we give full guidance.

Got it. That's helpful. I'll stop there. Thank you for taking my question.

And the next questioner today will be Spiro Dounis with Credit Suisse. Please go ahead with your question.

Good afternoon. Thanks for taking the question. I wanted to start up on CapEx if we could and I don't want to get to at your 2019 guidance coming up in the next month or so. But it sounds like maybe you could take a material step down from 2018. And just wondering do you see that going higher if the market strengthens from here, really just trying to get a sense for I guess how much capacity or appetite you guys have to keep spending elevated if things remain really tight?

First of all Spiro, welcome to the family.

Thank you.

And the short answer is no. You might recall that our strategy when we started our two year capital plan last year was to size pipe today, to size it for the future. And so, what we did is we accelerated some of that CapEx just for this purposes that even if there is more producer activity, we will not have to loop lines and therefore can still – can still have declining capital expenditures even with increased activity.

Got it. Okay. And then you mentioned this in your prepared remarks, but obviously the delays in Mentone have been really driving to your guidance midpoint stayed the same, just curious if that was a function of you guys building in some conservatism there or is the underlying business just coming in stronger than expected?

So, I mean it is not a material delay. You know you are talking about our expectations of the end of the third quarter, and so really only looking at few weeks after that. And so, between that and our – and the fact that we had a range to begin with, just didn't have a huge impact.

One more, if I could. I'm sure you guys, you get assets every quarter, and so I don't want to break trend, but I guess has there been any movement around simplification or addressing the IDRs?

Just like Jeremy's discussion, totally understand your need to ask, but we have nothing new to say on that topic at this time.

Our next questioner today will be Jerren Holder with Goldman Sachs.

Good afternoon. Just wanted to go back maybe to the guidance of at least 20% and just want to know, how does that factor in the Colorado election coming up?

That's a great question, and obviously we're not in position to speculate on the election, but we're confident enough in that number that regardless of outcome we feel like that something we can meet.

Great. And then, maybe switching to the distribution growth outlook, as you look to next year, so you guys broke out the 9% number for 2019, you know how should we think about that just given that many other companies have moved to slower growth rates retaining more cash, how are you guys thinking about distribution growth in general.

Totally fair question, and when we give 2019 guidance, we will address that in detail.

Okay. Thank you.

And our next questioner today will be Colton Bean with Tudor Pickering Holt. Please go ahead.

So then on the 2019 outlook at 20%, any rough breakout of how much of that is underpinned by the respected basins?

Well, we can give more than a rough breakout when we give guidance. But it shouldn't surprise you at all that you knew Delaware is the high growth entity, that's where we spend the bulk of our capital and it's where those volumes are really starting to ramp with all that critical infrastructure coming online. But if you want, you know capital by basin, which we given in our normal guidance you are just going to have to wait just a few more short weeks.

It sounds like in the commentary there, that 2019 expectations are largely underpinned by existing DJ permit, so no – at least muted risk to 2019 and really will be a longer-dated consideration, if anything were to change?

I think that's fair.

And just final one, so Powder River development has been on drawing board for a few quarters now, so if 2019 is largely underpinned by Delaware and existing DJ permits, is there potential for the PRB to be a meaningful contributor by 2020 and a great save the world that's adding a third leg to the stool and maybe a downside case it's mitigating some of the issues in the DJ?

Potential yes, but there is absolutely nothing in our forecast that gives us confidence around that 20% number.

Okay, so thinking more so on a 2020 basis

Yeah, there is upside there.

The next questioner today will be Sharon Lui with Wells Fargo. Please go ahead.

Just a couple of I guess housekeeping questions. In terms of Cactus II payments this year, are you expecting any additional payments?

Good morning. Sharon, I'm going to let Jaime take that one.

Yeah. On Cactus II, that isn't expected to go in the service until next year.

Oh capital?

We have some expected ongoing capital calls that will probably go through the balance of the year into the fourth quarter, and usually as it is normal practice, as it ramps us into the third and fourth quarters, based on Plains' guidance, we'll continue to pay our share there.

Okay, and then I guess the impairment charge of $24 million this year, is that fully weighted to the – sum discussed last quarter?

Yeah, this is Jaime again, about $7 million of that is related to those two systems that we shut down earlier this year.

And it sounds like they are based on your remark that even if top ones falls does go through and there is a shift I guess in Anadarko's rigs to the Delaware and PRB that your CapEx outlook for 2019 wouldn't really change that much to support that activity?

That's an interesting question as it relates to capital, and that's probably why we weren't as specific with the capital number as or the EBITDA number. So, I'll just reiterate is, where there is enough existing growth from what we see as even a low-case 2019 activity that we can achieve that 20% EBITDA. We'll give more guidance on capital when we get on the other side of next week.

The next questioner today will be Mirek Zak with Citigroup. Please go ahead with your question.

Just one quick one from me and it kind of builds on to Colton's question, if hypothetically thing didn't go the way you'd hope top on 12 and you see some DJ producers shift capital elsewhere such as Anadarko, specifically commenting on the Powder River. I know you currently have a position there today, but in general, what would be your ability and appetite to support meaningful infrastructure build out in other basins for ABC or other DJ customers, perhaps in basins that are really your key focus regions at this time?

Good morning Mirek. I think you know to echo Anadarko's comments this morning, their strength is in diversity. They are not a single basin pure play and they have the optionality to move rigs to other basins, should it be required. We as a midstream on have that same optionality to follow them and hook up those wells and process the gas and oil and water where they may go. So, we have that same inherent flexibility inherent in our business. Would we follow those rigs? Of course we would. The question – your question maybe more of third party business, and that's strictly you know the facts and circumstances of that third party opportunity, but we would never say never, but certainly our MO, if you will would be to follow those Anadarko rigs if they had to go somewhere.

And our next questioner today will be Kyle May with Capital One Securities. Please go ahead.

Good morning. I was wondering if we could start out, I know 2019 CapEx is not official yet, but can you just give us a reminder on how much capital remain for the project which you've already announced and then maybe a follow-on, give us a sense of how much more infrastructure is needed in the Delaware to support Anadarko's activity as they transition through development mode.

Okay, I will start and then I may hand over for sort of additional detail. Mentone I is largely done, right. You are talking about commissioning being underway and you know start-up in the next few weeks. With Mentone II in the first quarter, I would say the bulk of it has been completed, but there is still a decent chunk of capital there. In terms of our 2019 plans, which we'll address in more detail and give guidance, I would say the bulk of the CapEx would be spent next year as opposed to this. And those are the major projects.

And switching over to the crude, NGL and water segment, adjusted gross margin had a nice rebound when you look at the per barrel contribution this quarter. Give your outlook for that is we move forward?

I'll let Jaime take that.

Yeah. The outlook on that would be as the water volumes continue to increase we would expect that margin on average to continue to decline. But just because the water business even though it's – it generates higher returns, it's lower margin business on dollar per barrel basis.

It's a gather business instead of the long haul transportation business.

Okay and any context around how much water is – or how much on a percentage-based water make up that segment?

Well, today we have 120,000 barrels capacity on the water business. We expect that to grow to about 180 by the end of next year and then it's going to be a function of how that ramps up relative to the crude and NGL you know businesses and lines we have. It's in the 20% to 25% range today.

Okay, great. That's helpful. Thanks guys.

And the next question here will be Dennis Coleman with Bank of America Merrill Lynch. Please go ahead.

Hi. Good morning. And thanks for taking my question. Just Ben if you could back to Prop 112, I know there is – we are sort of sitting here a week away and there is no sense in talking about the outcome. But can you talk maybe a little bit about Colorado as a market? And it's just the idea that this is the second election in a row where we've had these issues, and if the results come out and there is 40% of the population that does support something like this, it's hard to imagine that you don't do this again two years down the road, and two years down the road after that. How do you think about that both maybe in the longer term as you think about Colorado?

Sure, Dennis. I'll really echo Anadarko's comments this morning, which is regardless of the outcome, there is still work to do, right. There is work to be done with the new administration and new legislature. And so, whatever happens next week is more of a beginning then a chapter closing. And I think we can be a little more detailed about those activities once we give full guidance and we know exactly what the situation look around.

Okay. And then just one housekeeping for me. The options on Red Bluff and Cheyenne Connector obviously – three more months has past, any other incremental thought there?

We'll need to make an announcement one way the other on Red Bluff in the fourth quarter. So watch this space, and then the first quarter of 2019 will have to decide on the other option.

Okay. That's it for me. Thanks.

And the next questioner today will be Spiro Dounis with Credit Suisse. Please go ahead.

I just had one follow-up on the options actually. So obviously you have these two in the hopper now and I know Jeremy asked about, I guess the drop down inventory before, but if we could sort of think about it in terms of an option inventory. Do you guys are seeming able to replenish the options going forward, seems like a really good sort of capital efficient way to sell the growth?

We would agree with that assessment for our first starters. We are very fortunate that our sponsor has both the willingness and the commercial wherewithal to negotiate these types of options when they make commitments. And so the extent, there are future commitments to be made. We know we will at least ask the question and should have some leverage in that negotiation. The options that we have been – that we are allowed to disclose, we have disclosed. And so they is really not much else we can say about other potential specific projects at this time.

Got it. That's fine. Thank for taking the question. I appreciate it.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Benjamin Fink for any closing remarks.

Thank you everyone for your support and your participation. And please be safe while trick or treating tonight. Have a great day.