Good afternoon. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you. I'm glad you could join us today for Western Midstream's fourth quarter 2024 conference call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings releases contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today. Relevant reference materials are posted on our website. I'm pleased to inform you that the Western Midstream Partners K-1 will be available via our website beginning Friday, March 7. Hard copies will be mailed out the following week. With me today are Oscar Brown, our Chief Executive Officer, Danny Holderman, our Chief Operating Officer, Kristen Shults, our Chief Financial Officer and Jon VandenBrand, our SVP of Commercial. I will now turn the call over to Oscar.

Thank you, Daniel, and good afternoon, everyone. Before we discuss our fourth quarter and full year 2024 operational and financial results, I'm excited to announce a large expansion of our produced water gathering and disposal infrastructure in the Delaware Basin to support continued upstream development over the long-term. WES sanctioned the Pathfinder Pipeline, a 30 inches long haul pipeline that will be able to transport over 800,000 barrels a day of produced water to our existing and soon to be constructed facilities in Eastern Loving County. This midstream project is anchored by a new long-term produced water agreement with Occidental Petroleum to provide up to 280,000 barrels per day of firm gathering and transportation capacity and up to 220,000 barrels per day of firm disposal capacity supported by corresponding minimum volume commitments. I am also pleased to announce that we have executed amendments to our legacy produced water agreements with Oxy in the Delaware Basin. These new amendments retain the cost of service and fixed fee components of the original agreements and better support our customers' long-term development plans. We will continue to provide our largest customer with excellent customer service and firm flow assurance in exchange for a 3.4 year extension to the original produced water gathering agreement in the Delaware Basin. These agreements demonstrate the continued strength of our relationship with Oxy and further provide support for sustainable distribution growth over the coming years. As operators within the Permian Basin are well aware, oil and gas production generates a tremendous amount of produced water and managing it presents significant challenges to the long term development of the basin. WES is excited to provide an innovative midstream solution via the Pathfinder pipeline that will facilitate the transportation of produced water away from areas experiencing high intensity water disposal to…

Thank you, Oscar, and good afternoon, everyone. Our fourth quarter natural gas throughput increased by 4% on a sequential quarter basis as a result of strong growth from both the DJ and Delaware Basin. This performance resulted in our eighth consecutive quarter of record natural gas throughput in the Delaware Basin, and we achieved our highest throughput levels in the DJ Basin since becoming a standalone partnership. Our fourth quarter crude oil NGL's throughput increased by 6% on a sequential quarter basis, primarily due to strong customer activity levels in both the DJ and Delaware Basin. Our produced water experienced record throughput, increasing 8% on a sequential quarter basis due to strong producer activity levels and fewer volumes used for recycling purposes. Our fourth quarter per Mcf adjusted gross margin for our natural gas assets remained unchanged compared to the prior quarter and in line with our prior expectations. Going forward, we expect our first quarter per Mcf adjusted gross margin to be in-line with the fourth quarter. Our fourth quarter per barrel adjusted gross margin for our crude oil NGLs assets increased by $0.12 compared to the prior quarter, primarily due to a favorable revenue recognition cumulative adjustment recorded in the fourth quarter associated with higher cost of service rates at our DJ Basin oil system and the timing of distribution payments associated with our equity investment. We expect our first quarter per barrel adjusted gross margin to be in line with the fourth quarter. Our fourth quarter per barrel adjusted gross margin for our produced water assets remained unchanged compared to the prior quarter and in line with our prior expectations. We expect our first quarter per barrel adjusted gross margin to decrease slightly compared to the fourth quarter due to the new produced water amendment with Oxy…

Thank you, Danny, and good afternoon, everyone. During the fourth quarter, we generated net income attributable to Limited Partners of $326 million and adjusted EBITDA of $591 million. Relative to the third quarter, our adjusted gross margin increased by $41 million which was primarily driven by increased throughput from the DJ and Delaware Basins. The increase also included the recording of $9.2 million of favorable revenue recognition, cumulative adjustments associated with redetermined cost of service rates, uncertain contracts associated with our assets in South Texas and our DJ Basin oil system. Our operation and maintenance expense remained flat sequentially due to lower maintenance and repair expenses, offset by higher field level personnel costs, increased utility costs and higher surface use land fees related to our produced water business. Going forward, we anticipate a slight sequential quarter decrease in our operation and maintenance expense, consistent with historical trends where the first quarter typically sees the lowest operation and maintenance expense of the year. Our general and administrative expense increased sequentially, primarily due to costs associated with a onetime true up of the annual bonus accrual. Going forward, we would expect our general and administrative expense to revert back towards prior quarter levels. Turning to cash flow, our fourth quarter cash flow from operating activities totaled $554 million generating free cash flow of $309 million. Free cash flow after our third quarter 2024 distribution payment in November was a use of cash of approximately $32 million. In January, we declared a base distribution of $0.875 per unit, which was unchanged relative to our prior quarter distribution paid in November and was paid on February 14 to unitholders of record on February 3. Turning to our full year results, we recorded $1.54 billion of net income attributable to limited partners generating $2.34 billion…

Thank you, Kristen. I'm excited to provide you more details about the announcement of the Pathfinder Pipeline that will support the long-term development plans of our customers in the Delaware Basin. First, we will be constructing the Pathfinder Pipeline, which will consist of over 40 miles of polyline steel capable of transporting more than 800,000 barrels of produced water per day before any expansions. Additionally, we will also develop a series of facilities that will aggregate water off of our existing produced water gathering and disposal system and ensure it is delivered onto Pathfinder pursuant to our customers' commitments. Finally, we will also build nine additional SWD facilities in Eastern Loving County located in areas away from high intensity water disposal. These wells will provide us with disposal capacity located in areas where we can focus on accessing strategic pore space in a responsible and ratable-manner on a long-term basis. We are excited that these developments are anchored by a new long-term agreement and corresponding minimum volume commitments with Oxy. By working together, we are de-risking there and our long-term development plans. Given our unique position as the only true large scale gathering and processing operator that provides midstream solutions at scale and across natural gas, crude oil and produced water, we understand the importance of providing real flow assurance to our customers for all of their production streams. With that in mind, we are also strategically sizing and positioning this infrastructure to allow us to work with all of our producers in the Delaware Basin, including those in both New Mexico and in Texas. This midstream infrastructure is also supported by alignment and partnerships with strategic landowners to ensure that we protect mineral interests, unlock access to pore space and protect that pore space through responsible development. This alignment…

Thanks, Jon. As we enter 2025, WES stands poised for growth, driven by strategic positioning and a history of strong operational and financial performance. The partnership success stems from years of dedicated effort, which has resulted in the formation of robust partnerships with a diversified group of producing customers that presents opportunities for potential expansion. These efforts have included investing in people and technologies to establish WES as a standalone midstream partnership, a focus on debt reduction and driving leverage down from approximately 4.6x in 2019 to just under 3x today. Focusing on strong free cash flow generation, which has helped increase the base distribution 46% above pre-pandemic levels when taking into account the 4% increase we intend to recommend to the Board for the first quarter of 2025 and growing throughput materially across all three product lines by generating incremental business from existing customers and attracting new customers onto our system. While our first five years as a standalone enterprise can be characterized as a period of building out our internal infrastructure and deleveraging, we expect that the next five years will be characterized as a period of growth and additional success. Now that we have constructed two new natural gas processing plants, greatly increased our presence in the Powder River Basin and substantially delevered our balance sheet, we are well-positioned to utilize our strong asset base and balance sheet to capitalize on incremental organic and inorganic growth opportunities. By successfully partnering with Occidental and third-party customers, we have grown our throughput meaningfully over the last five years. The Pathfinder pipeline project anchored by Oxy, coupled with the recently announced contract extension for produced water, as well as the agreement for a 10-year extension to certain minimum volume commitments in the DJ Basin, demonstrate the strength of our relationship…

[Operator Instructions] Your first question comes from the line of Spiro Dounis at Citi.

Thanks, operator. Afternoon, everybody. I want to start maybe with the growth outlook. You sort of changed your capital allocation framework a bit here and introduced this new target for distribution growth at low to mid-single digits. Kristen, it sounds like your comments suggest that should kind of more or less mirror EBITDA growth going forward. So to our question here, curious, I mean, how did you come up with that amount, and why that's the right amount going forward? And as you think about the capital spending necessary to drive that growth, what kind of levels are you thinking about there?

So we obviously do quite a bit of forecasting and planning going out pretty far and looked at to your point, Spiro, what we expected growth capital to be, what that would do to EBITDA and then what we felt was a sustainable base distribution growth level that we could continue to support into the future. And so after going through that, that's how we came up with the mid to low-single-digit distribution growth there. From a growth CapEx perspective, you know, we've historically said if you go back to our 2022 capital spend that we had in that year, that would be something that would keep us relatively flat to a little bit up from a growth perspective. I think what we're seeing right now from a pipeline perspective, both in the PRB with the inter introduction of Pathfinder, are quite a few organic growth projects that we've got. And so I'd expect for a little bit of time now, to have, you know, incremental capital that's spent to bring these projects to fruition. Capital specifically related to Pathfinder, we talked in the script about it being $400 million to $450 million spending $65 million this year. And so that there'll be quite a bit of organic growth capital for next year to get that pipeline constructed. And then PRB is around $200 million of our capital spend for 2025. Obviously, as we get into 2026, we'll have to take a look at how the basin continues to do from a growth perspective, but it's we're very optimistic about the future in the PRB as well.

Got it. Got it. Very helpful. Second one, just going to Pathfinder, pretty big gap between the sort of size of the pipeline at 800,000 a day versus the initial contract from Oxy. So I guess curious on a few fronts here. One is that initial contract from Oxy effectively underwriting that entire 800,000. And as you think about pulling up that base, what does that do to the return multiple over time? And do you expect to kind of do that by 2027 or 2028 or could that take a little more time?

Hey, great question. This is Jon. I think there's a couple of things to think about right? Not all of the capital is going to be spent on that transportation pipeline that we're upgrading. A lot of it is also to connect the systems together to the existing system we have and also to build out some additional disposal capacity on the Eastern side of Loving. But when you do look at it, that most efficient capital you can spend on these projects is to upsize that pipeline. And you're right, we do think that the contract that we have in hand with Oxy today is helping us to get to that very midstream centric rate of return, where we can spend that capital and get those returns. We also think though that that sets us up to go get a lot more opportunity that we can put onto that pipeline and really accrete that rate of return significantly higher from where it is today where we're already happy with it. And so I think that just goes back to what we think of the size of the price here, which is really trying to position ourselves to be aligned with what is a very large challenge and opportunity about dealing with all the produced water growth in the basin and finding out how to responsibly disperse that to areas where it's more responsibly disposed of over time. And so we think, right, the rate of return is exactly what we need from a Midstream perspective, but we also want to be opportunistic and set ourselves up with very efficient capital to go capture even more of that growth over time as that comes our way.

Your next question comes from the line of Keith Stanley at Wolfe Research.

Hi, good afternoon. Wanted to follow-up on the last question and just check-in if you've already if you're already actively in discussions with other customers to help fill up the pipeline at this point to improve returns?

No, absolutely. I think the background we'd give you there is that this isn't a discussion that just happened overnight. We've been actively working something like this for a long time and then it takes a lot of time to really work not only with the producers, but also with the landowners and how you have to progress this also from a regulatory regime. So one thing we're really focused on is getting in front of all those discussions and I'd say absolutely the way we've the pipeline is designed in a way to have open discussions with a lot of other producer customers. And certainly, as we go over the next two years in terms of building and executing on that development of the infrastructure, we'll continue to have those and put it to a point where we can hopefully put some more volumes on the system.

Great. And another follow-up one on water. Can you talk a little bit about who you see as your main competitors in Permian produced water today? And thinking longer term, what the opportunity set is to try to grow the water business and potentially consolidate it over time?

Hey Keith, it's Oscar. I'd jump in here and then turn it back over to Jon. But one thing I'd say, this is a really unique solution. It's very much a midstream construct, right? Our contracts look like midstream contracts. This is a major project and it's a long term solution. So we think this is a bit of a different business model. And then developing this with Oxy and then in our discussions with other potential customers, this is a solution that works for the long term unlike some of the other kind of shorter term or oilfield service type solutions out there. So I just wanted to start with that and then maybe Johnny can talk a little bit about altogether.

Yes. I think we're less focused on necessarily the competition as we are on value we've created on our water system, but we've certainly kind of constrained ourselves there because we're not willing to deploy capital at rates of return that aren't acceptable or to take on risk that we don't want to, or that we don't have a proper mitigation for. And so really here, I think it's like Oscar said, this is a long term midstream solution where we see we're actually moving it in a differentiated way and to the extent which we do believe that it goes more in that direction, we're absolutely looking at seeing ways that we can grow off of that platform.

Your next question comes from the line of Jeremy Tonet at JPMorgan.

Hey, this is Noah Katz on for Jeremy. Thank you for the question. First, I want to touch on the new long term produced water gathering and disposal system agreements with Oxy. Are there any other contracts with Oxy that you would consider extending going forward? And what would these contracts most likely be centered around?

Maybe the, it's Oscar. The extensions in general, I mean, we've already announced, extensions on the gas side and the DJ. So there's opportunities with all customers. And we work on that all the time. John's pretty busy on that and, contract extensions in general. But, I don't know if you meant specifically to water or.

Yeah. Water.

I think we have long Okay.

Yeah. We have generally long-term contracts, especially on the Oxy side, but throughout the portfolio with everyone. And like Oscar says, we're continually looking to maintain and extend those.

I think anyone who's got substantial production, particularly in Western and Northern Delaware Basin, has got to be looking at water, for the long-term. And what you're seeing here in this sort of new construct is sort of the first step in those long-term solutions. Again, you probably know this, but the water to oil ratio is sort of 3x to 12x in the basin. So we're pretty good at producing a lot of water and then some other hydrocarbons too. And so it's a big and growing challenge and we think this is a great way to sort of start mitigating that problem.

Sounds good. Thanks for that. And then as a follow-up, looking ahead to 2026 CapEx, what are your initial thoughts, I guess, on the CapEx range there with the $360 million from Pathfinder flowing into the range? And what can we expect steady state to be going forward, I guess, ex the Pathfinder CapEx? And would 2026 CapEx be similar if the Powder River Basin CapEx is the same year-over-year?

Yeah. So kind of pulling that apart into a few pieces. Obviously, expect 2026 capital to be higher than what you're seeing for 2025 just as we add in the vast majority of Pathfinder into 2026. From there, what I would say is it's very much dependent on, additional growth that we see in the PRB and what that looks like. The landscape up in the PRB is just so vast. And so, building out to capture more volumes that are at the rate of return that we want it to be at, it's going to cost a little bit of money up there. The other aspect is, as Jon was mentioning, just the, you know, incremental customers that we would bring on to Pathfinder and, thus, the infrastructure required to bring them on to Pathfinder, that those dollars amount that capital would be impacting 2026 and, obviously, periods beyond that. So I think in general, your kind of normal run rate capital is a little bit higher than it previously was with us just because, we have grown. Right? Like, we've grown more with the Meritage acquisition and we've grown more in the PRB. We still continue to put quite a bit of capital to work in the Delaware Basin because it is the main growth engine of the company. And so between all the areas that we have that are growing as well as just organic new projects that we're coming up with like Pathfinder, you're going to see that capital needs to be a little stronger going forward.

Thanks for the color. And Jon, Jeremy wanted me to say he's excited for you to come to be back. So I'll leave it there. Thanks.

Appreciate it.

[Operator Instructions] Your next question comes from the line of Manav Gupta at UBS.

Good afternoon. My question here is you mentioned that you could be looking to grow through bolt-on deals. I'm trying to understand, can you give us some criteria which would make a deal a good bolt-on deal for you guys, rate of return, kind of investment, synergies, if you could just help us talk through those things?

Yes. Thanks for that. It's Oscar. It's very consistent the way we've always thought about acquisitions in the past. So of course, we're a little biased towards organic growth, which you're seeing some of the results of that here today. But on the inorganic side, obviously, it needs to fit with our competencies, be in our complementary to our existing geographies. From a returns perspective, obviously, needs to meet our typical midstream returns requirements. We'd like to be able to bring and add some value to any acquisition and generate a level of synergy there. So it's sort of pretty typical stuff and hopefully not too surprising and very much again the template that we like to point to is a Meritage deal where we check all those boxes pretty well. So nothing new, but that's the criteria.

Perfect. Second quick follow-up is Slide 16 looks like you outperformed versus the guidance, moving to Slide 19, particularly interested in what could drive the free cash flow towards that $1.475 billion or maybe even above it as you were able to do in 2024 where you beat your free cash flow guidance?

Yes. I think a lot of it just has to do with how we perform from obviously, the components of free cash flow. Right? So on adjusted EBITDA, a big part for us is just producers and the expectations that we have around, throughput and when that's going to come on to our system. So, if they're exceeding the expectations and the forecast we have and that throughput gets on a little bit earlier, those type of things can make, you know, a big difference in our adjusted EBITDA. We also have our fixed recovery contract. So there is a commodity aspect to everything for the barrels and the product that we get to keep and sell. Cost savings, and what we do from a standpoint of that, it can help there. And then I would say on the capital expenditures piece, where we fall in that guidance range will also play a major impact on the free cash flow. With Pathfinder, that's obviously a very large project. And so as we keep heading through the year and see, maybe if there's pieces that we can accelerate that might push some more capital into this year, or things are taking a little bit longer, pushes it into next year. But whenever we have these larger, chunkier projects, that's where you can see the capital move around a little bit more as the year continues.

Your next question comes from the line of Ned Baramov at Wells Fargo.

Hey, good afternoon. One more question on capital allocation, if I may. So the Board recently authorized the $250 million buyback program and you just talked about CapEx guidance and elevated capital requirements into 2026. You also laid-out, the planned distribution increases. So it doesn't seem there is much room for unit repurchases. So could you maybe walk through how you think about the timing of buybacks and whether leaning into balance sheet capacity is something you would consider should the unit prices present an attractive opportunity for buybacks?

Sure. Thanks for the question, it's Oscar. So yes, it's really this one's really just good housekeeping. We agree with the growth projects we have and serve all the opportunities in front of us. So it's unlikely, we would do much on that program at least in the near-term. It's nice to have one of those there if there's some significant market dislocation or some other event. But literally our last program just expired, so we just wanted to put something in place. But don't take it as a strong signal that that's something that at least in the current environment that's on our mind.

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

Great. Thank you so much for your interest and your questions today. We look forward to talking to everybody on the road, but also in May in our next call. And thanks again to our WES team for all the work they've done and where we're headed with the company. Really looking forward to the future and the next earnings call. Take care.

Thank you. This concludes today's conference call. You may now disconnect your lines.