Good morning. 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 Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. 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 Second Quarter 2025 Conference Call. I'd like to remind you that today's call, the accompanying slide deck in yesterday's earnings release and the Aris acquisition press release and slide deck contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward-looking statements we discuss today. Relevant reference materials are posted on our website. You will also note that due to the pending Aris Water Solutions transaction, today's discussion is subject to certain additional securities laws. And so we refer you to the slides in the Aris acquisition slide deck titled Forward-Looking Statements and Ownership Structure, and additional disclaimers that are posted in the Events and Presentations section of WES's corporate website. 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 Senior Vice President of Commercial. I'll now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. The second quarter was both eventful and highly successful for WES. Yesterday afternoon, we reported strong second quarter operational and financial results, highlighted by sequential improvement in adjusted gross margin and the highest quarterly adjusted EBITDA in our partnership's history. In addition, continued strong activity levels and high system operability contributed to increased throughput across all core operating assets and product lines. Notably, we achieved record-breaking natural gas, crude oil and NGLs and produced water throughput in the Delaware Basin. While our quarterly results were noteworthy, it is our steadfast commitment to and effective execution of our prudent growth strategy that truly distinguishes this quarter's performance. This is exemplified by our recent announcement of an agreement to acquire Aris Water Solutions and the sanctioning of a second train at our North Loving natural gas processing plant. These actions will enable us to further strengthen our footprint in the Delaware Basin, expand our service offerings and deliver enhanced flow assurance to all our producing customers. Turning first to the Aris announcement. This accretive bolt-on acquisition enables us to optimize the value of our existing asset base and leverage our operational expertise to generate incremental value for our unitholders, which are both core principles of our M&A strategy. By integrating Aris's water disposal, water solutions and beneficial reuse capabilities with WES's existing produced water business, including our under-construction Pathfinder pipeline, this acquisition establishes WES as a best-in-class intra-basin produced water system provider. With a differentiated Texas and New Mexico water system, WES will continue to deliver exceptional flow assurance and sustainable service offerings to customers for years to come. The ability to transport water throughout the basin has become increasingly important considering the volume of produced water generated in the Delaware Basin and the recent…

Thank you, Oscar, and good morning, everyone. Our second quarter natural gas throughput increased by 3% on a sequential quarter basis, primarily due to increased throughput across all of our core operating basins. The Delaware Basin outperformed in the second quarter, primarily due to numerous wells coming online early in the second quarter. This increase was partially offset by lower throughput from our other assets, specifically in South Texas due to plant turnaround activities during the quarter. Our crude oil and NGLs throughput increased by 6% on a sequential quarter basis due to increased throughput across all of our core operating basins and new wells in the Delaware Basin that came on early in the quarter. We also experienced increased throughput from our equity investments. Additionally, our produced water throughput increased by 4% on a sequential quarter basis due to new wells in the Delaware Basin coming online early in the quarter. Our second quarter per Mcf adjusted gross margin for natural gas decreased by $0.02 on a sequential quarter basis, which was in line with our prior expectations coming into the quarter. This decrease was primarily driven by lower excess natural gas liquids volumes in conjunction with reduced NGL pricing and changes in contract mix. Going forward, we expect our third quarter per Mcf adjusted gross margin to be in line with the second quarter. Our second quarter per barrel adjusted gross margin for crude oil and NGLs decreased by $0.15 compared to the prior quarter, which was in line with our prior expectations coming into the quarter. This decrease was primarily due to more normalized timing of distribution payments and increased throughput from our equity investments, which have a lower-than-average per barrel margin as compared to our other crude oil and NGL assets. On an operated basis, our…

Thank you, Danny, and good morning, everyone. During the second quarter, we generated net income attributable to limited partners of $334 million and adjusted EBITDA of $618 million. Relative to the first quarter, our adjusted gross margin increased by $18 million. This was primarily driven by increased throughput and improved gross margin contribution from the Delaware Basin, which was partially offset by less gross margin contribution from the excess natural gas liquids volumes in combination with lower NGL pricing and lower distributions from our equity investments. Our operations and maintenance expense decreased slightly quarter- over-quarter. Going forward, we anticipate higher operation and maintenance expense during the third quarter, resulting from increased utility expense during the hotter summer months associated with higher estimated electricity pricing. As a reminder, we are reimbursed for approximately 75% of our utility cost portfolio-wide from our producing customers. Turning to cash flow. Our second quarter cash flow from operating activities totaled $564 million, generating free cash flow of $388 million. Free cash flow after our first quarter 2025 distribution payment in May was $33 million. Focusing on capital markets activities, we retired $337 million of senior notes upon their maturity in early June with cash on hand, and we were able to maintain our top-tier net leverage ratio of 2.9x at quarter end. In July, we declared a quarterly distribution of $0.91 per unit, which is in line with the prior quarter's distribution and will be paid on August 14 to unitholders of record on August 1. At this time, we are not making any changes to our 2025 financial guidance ranges considering the estimated Aris acquisition close date, which we expect to be during the fourth quarter after the regulatory review process and the Aris shareholder meeting is complete. Additionally, as Oscar previously mentioned, during…

Thanks, Kristen. Before we open it up for Q&A, I would like to emphasize how our premier asset portfolio, steadfast commitment to financial discipline and resilient business model distinguish us as an industry leader and positions us to capitalize on compelling growth opportunities, all while delivering industry-leading return of capital to our investors and sustained long-term value to our stakeholders. First, the Aris acquisition significantly strengthens WES's position as a midstream water services leader and allows WES to provide elevated levels of flow assurance to our customers that further derisks their core exploration and production businesses. The increased scale and expanded service offerings that the acquisition provides will better position WES to compete for incremental natural gas and crude oil and NGLs business over the long term and especially in New Mexico. Second, the Aris acquisition and the sanctioning of our second train at the North Loving plant were driven by continued strong producer activity levels in the Delaware Basin that greatly support our growth outlook and strategy in 2026 and beyond. Despite experiencing volatile market conditions early in the second quarter, we have not experienced any substantial changes in our customers' expected production outlooks, and we remain on track to execute our overall growth strategy. Finally, WES's long-term contract portfolio, strong balance sheet and investment-grade credit ratings provide the financial flexibility necessary to support our multiyear expansion projects. Our contract structure supported by minimum volume commitments and cost of service protections further enhance the stability and predictability of our future profitability and potential free cash flow generation. By maintaining low net leverage and generating strong free cash flow, we are well positioned to maintain our disciplined capital allocation framework, increase distribution coverage and return more capital to unitholders over time. Our strong second quarter results have kept us on track to achieving our 2025 operational and financial goals and the Pathfinder Pipeline and North Loving II organic growth projects as well as the Aris acquisition prudently accelerate our growth plans for 2026, 2027 and beyond. We will remain focused on providing excellent customer service for our producing customers, and we look forward to leveraging our leading midstream water services position to drive additional growth in our natural gas and crude oil gathering and processing businesses. Thank you to the entire WES workforce for your hard work and dedication to our partnership. And with that, we'll open the call up for questions.

[Operator Instructions] Your first question comes from the line of Keith Stanley of Wolfe Research.

I wanted to start on the funding for Aris. So you're issuing over $1 billion of equity for the deal in a leverage-neutral way. The company has excess balance sheet capacity today. So can you talk to that financing decision? I guess, especially with the stock yielding 9%, I think you'd get a lot more accretion if you use more cash on the deal.

Yes. No, thanks for that. It's Oscar. So when we looked at this, we had the opportunity to do a transaction that's immediately accretive to really all our metrics on a per unit basis and to finance it leverage neutral. And we think that gives us the kind of capability to lean into, one, our organic growth projects, which are increasing as we talked about, but also to position us for additional consolidation opportunities in gas and oil as they arise. So given the metrics here, we thought it was a great opportunity to just preserve the balance sheet and set us up for additional opportunities in the near term.

Okay. Great. Second one, I guess, just from a business mix perspective, you make the point on the slides that water is still only 16% of EBITDA with the transaction. It's a big part of your growth strategy and capital plan, though. So where do you see water kind of as a percentage of the company going forward? And is there any limit or mix that you're going for?

I don't think we have a specific target mix. We firmly believe the water business has evolved into a midstream, a clear midstream type of business, just like gathering and processing for oil and gas. If you look at the commercial contracts that they have, the dedications and the MVCs, it looks just like the rest of our business. So commercially, we're sort of happy with any of the 3 streams that we support, and it really helps us with our customers and helps them with overall integrated flow assurance. In terms of the business mix, we kind of like this 15% range. When we're highly successful on a Pathfinder, it will creep up a little bit closer to 20%. We're probably pretty happy with that mix.

Your next question comes from the line of Gabriel Moreen at Mizuho.

I just wanted to ask about following up sort of on the water deal. And can you just talk about systems around Aris and going to New Mexico here? Are there other privately held systems where you view the opportunity to continue to consolidate around here? And then also from a regulatory standpoint, you're making an entry into New Mexico. Just your views on doing business in that state versus in Texas, particularly on the water front, whether it's permitting disposal wells or what have you, what your views are there?

Thanks for that, Gabe. So in terms of -- again, Aris was our #1 sort of focus opportunity given their sort of midstream structure for us in the water business. And when you look at the map, it really completes our system in the Delaware Basin. So we're pretty happy with the combination here and don't see a lot of need to continue to add to the system from here in an inorganic way. And frankly, the commercial opportunities increased dramatically for both entities with the combination. So I think that will help us on that front. We've been looking for a way. We operate in a small way in New Mexico today across streams, and we've been looking for a way to grow in New Mexico. So we're comfortable with the regulatory environment. We have experience there, obviously. And so we don't see any concern there with sort of those kind of issues. In fact, we think that the ability to move water across state lines and across the combined systems is going to be a critical feature in optimizing the assets and frankly, increases commercial opportunities for Pathfinder in the long run as well. So we really think this combination gives us a unique position in the space.

And then maybe if I can pivot to the FID on Loving II, I think maybe a little bit sooner than some folks were expecting. You talked about still needing some offloads and maybe having that baseload some of the plant. In the past, you've also had some commitments from some of your producers to baseload new plants. Can you talk about that? And also a lot of new plan FIDs. Are you playing a little more offense and being a little more aggressive here in terms of the FID of this plant maybe relative to some of your historical plan FIDs?

Yes. I think that's right. So historically, we've taken a very conservative approach and built up an offload portfolio that ultimately equips the size of a plant and then at that time would take FID and 2 years later, you'd have a plant. We've probably ceded a little market share with that strategy in the past. Here, we spent a lot of time with our existing dedication customers and producers to really understand their medium- and long-term sort of view on where their gas production is expected over the next few years. And so really we're thoughtful about this and had the opportunity to go ahead and take FID. The design of North Loving, the area and then North Loving I sort of built in the opportunity to move quickly on an additional train. We have the space. We already had much of the design work done, in line with completing the first one. So we are continuing to use offloads today. We see growth in gas with our producers. We're aligned with the direction the basin is going in terms of increasing GORs as well. So we have a lot of confidence and visibility this time and decided to go ahead and move before waiting to kind of a completely full plant from the start.

The next question comes from the line of Manav Gupta at UBS.

Looks like a great deal. I'm just trying to understand this a little better. You talked about like $40 million in synergies. So how should we think about synergy capital? Would you have to spend anything to actually gain these synergies? And once this transaction closes, how should we think about the long-term distribution growth enabled by this transaction?

Thank you for that. Good questions. In terms of the synergy capture, the $40 million is all kind of G&A and typical sort of public company consolidation synergies. So low-hanging fruit that should be quick to realize. Of course, we've got to wait for this regulatory approval and shareholder vote. So there's a lot of planning we've done and are going to do in the next couple of months into closing. So we should be able to move very quickly on realizing those synergies. As we know, we have not counted any revenue synergies or commercial opportunities that the combination will provide, which we think are significant, including the potential pull-through of additional gas and oil gathering and processing based on the new enlarged footprint. In terms -- I'm sorry, your second question? I'm sorry, distribution growth. Yes. So we've continued to stand by our long-term mid- to -- mid-single-digit distribution growth outlook and plan. And certainly, an accretive transaction helps support that. Everything we do in terms of deploying capital, either sustains or grows our distribution, that's our core strategy. So this falls in line with that. We -- given where the yield is today, we don't see a lot of need to go above sort of our already indicated sort of distribution growth plans. And as we build distribution coverage, it's the only thing, frankly, we can identify is any additional risk in our story that we can control. So obviously, this transaction sets us up for well in excess of 10% EBITDA growth next year, and we'll likely stick to something in that mid-single-digit range. But of course, that will be up to the Board and the efficiency of how we close and execute on this transaction before we can make that determination.

You were kind enough to give us some idea of the 2026 CapEx. And just from a modeling perspective, should we expect this CapEx bump to be '26 and '27 and then fall off? Or should we just expect '26 to be elevated and '27 to fall off? If you could help us understand that a little better.

Yes. We kind of -- honestly, at this moment, based on what we see in our announced organic growth projects, the biggest of which, of course, are Pathfinder and North Loving II now. The vast majority of the capital for those projects sits in 2026. So if things remain unchanged, we would expect the CapEx to sort of normalize into 2027.

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

This is [ Eli ] on for Jeremy. Congrats on the strong quarter. Maybe just to look at the McNeill Ranch a little bit and understand how that fits into WES's long-term plans for pore space and surface use opportunities. What kind of opportunities do you see at that asset? And that might be different than the way Aris was looking at it?

Thanks for that. We see McNeill as certainly an upside opportunity, a bit of a call option. So we do view it as a longer-term upside. As you can see where the ranch sits, it's in a great location between basins and straddling the state line, on sort of the east side, but it is a little bit far from the current structure of the systems. So on the plus side, Aris has already applied for and received permits on the Texas side of that ranch for water disposal. So there's an opportunity there. And certainly, as the basin grows and water volumes continue to grow, we see that as a great long-term opportunity to expand our disposal business. In terms of surface use, I do think sort of our reach and footprint and many of our partners that we work with give us the opportunity to maybe move a bit more quickly on surface items, and they run the gamut of everything that, frankly, everybody is chasing. So we're pretty excited about having this surface area, this land. I think it's in a good spot and look forward to hopefully generating some value with it in the long run.

Awesome. And then maybe just thinking about the impact and some of the feedback you've gotten from Conoco or Chevron, where do they stand on this? And maybe if you could also just kind of touch a little bit on the pathway to a deal approval from here. I know you talked about a 4Q '25 close, but just what kind of hurdles do you see there to kind of getting this thing finished?

Yes. No, thanks for that. So obviously, we've gotten support from 42% of Aris's voting shareholders in support for the transaction in terms of the largest shareholder and customer that's coming to Phillips. We obviously already do a lot of business with Conoco today and have a great relationship there and have spent time with them as part of this transaction in making sure that they were -- they and we were aligned in what we're trying to do here. So we're very happy with that relationship. And obviously, just a week or 2 ago, Conoco extended their long-term contracts and dedication with Aris. So we're super pleased about that. We also, of course, do a lot of work with Chevron, Oxy as well and Mewbourne. So we've got some great history with the major customers here. But this does -- this transaction does do a nice job of sort of enhancing those business with those third-party customers. So it's a big positive. In terms of hurdles, I don't think we see anything. I think the regulatory process should be pretty standard, and we'll follow all the rules and move that along as quickly as we can and support that. And again, to also support Aris in the filing of their proxy and their shareholder vote. So it's really just -- those are just pretty standardized processes. They just take a little time. But again, we're pretty confident that we should be able to close the transaction middle to late fourth quarter.

The next question comes from the line of Zack Van Everen at TPH.

Tudor, Pickering, Holt & Co. Securities, LLC, Research Division Maybe going to the capital program for the remainder of the year. It looks like in the slide, the Powder percentage shifted down. Is this just a dynamic of the North Loving plant adding to the Permian? Or are you guys spending a little bit less than expected up in the Powder?

We are spending a little bit less in the Powder. We've seen some projects just shift around from a timing perspective. And so especially as we get towards the latter part of the year, you'll see stuff slip out of '25 and into '26. So yes, you're right. You have seen that shifted down. And then when you add in the incremental capital as it would relate to North Loving, that's going to increase the Delaware a little bit.

Tudor, Pickering, Holt & Co. Securities, LLC, Research Division Got it. That makes sense. And then maybe you talked to volumes being up across the board in '26. I know it's still early, but maybe just a quick breakout of where most of that growth will be. I assume Delaware, but is DJ still kind of in that flattish range and then maybe anywhere else you guys are expecting growth?

Yes. So for next year, for 2026, I agree with you. We'd expect the Delaware to continue to increase from a throughput perspective. The DJ, we'll see how the rest of this year turns out in terms of wells coming online. And then obviously, we're still waiting for producers' forecast. A lot is going to change in the next 4 months even and into January and February with updated producers' forecast. So we'll give some more thoughts and guidance around what 2026 will look like maybe closer to the Q3 into this year and then into next year.

Your next question comes from the line of Elvira Scotto at RBC Capital Markets.

I guess a couple of questions from me. On -- just on North Loving II, can you provide a little more detail on how you see that plant ramping when it comes online, given that you've kind of shifted from doing a lot of offloads before FIDing a plant?

Elvira, this is Jon. No, I think it's a great question. Like Oscar mentioned, we still continue to have a lot of interconnectivity on the offload side and are utilizing those to the extent we have volumes above the system. You saw the note that the plant reached full operational capacity already. And so we're very positive that as North Loving II comes on, we're going to have a significant amount of volume day 1 upon that plant coming on. I think Oscar mentioned that we were just able to make this decision based on the strength of our underlying contracts and frankly, the success of the organic business that we've had over the last 12 to 18 months with just new deals that continue to add additional volumes to our system. So across the strength of the existing contracts and those new ones, it gave us the line of sight to not only have the confidence to build the plant, but to know that there will be a substantial amount of volumes day 1 of it coming online.

Okay. Great. That's helpful. And then just a little bit on capital allocation. So how do you think about organic growth versus additional bolt-on opportunities? And then given this expanding your footprint in New Mexico, for continued growth in New Mexico, do you expect that to be more organic? Or do you think you'll need to do some more bolt-ons there?

Good question. I think M&A, as we talked about before, really does have to compete with organic growth from both the returns perspective, but we also think from a risk perspective, organic is always, in our minds, a bit derisked relative to acquisitions. So it has to be really competitive. And I think in the case of Aris, we've sort of achieved all those goals and really checked every box in terms of our M&A framework and what we shoot for and sort of the perfect deal, if you will. In terms of where we go from here, same thing, again, we continue to see a significant amount of organic opportunity across all our core basins. So we expect some more success there. It does make us a little more picky on the M&A side. And of course, again, everything we do has to sort of sustain and grow the distribution. So we've got some pretty good guardrails on how we think about value on acquisitions. And that's why it's really important that when we do these things, we have a real opportunity to add value to a transaction and have synergies as we do in the Aris deal. So it will be a mix, I think, in terms of New Mexico specifically. I think we have real organic opportunity as a result of this added footprint. But certainly, if there's an opportunity to do something that hit all our metrics as this deal does, we'd be open-minded to adding capacity in any of our streams, but particularly gas, I would say.

The next question comes from the line of Wade Suki at Capital One.

Wonderful. I apologize. And I apologize if you already addressed this question on the call. But going back to Aris, as you all are well aware, there are some sort of nontraditional things in here with mineral extraction and I'm thinking about the industrial water business in particular. Are these all areas you all plan on retaining, expanding? Are these things that you might consider outsourcing or jettisoning maybe at some point? Maybe give us some color on some of these other pieces of the Aris business, if you don't mind.

You bet. Actually, Aris's efforts in the consortium and the other technology, including industrial water were some of the more appealing parts and exciting parts of the business for the very long term. Obviously, the more options we have in solving our producers' water issues in the Delaware Basin, the better. And so initially, obviously, we've been, as an industry, focused on disposal and then recycle and now other uses for water becoming really important. So advanced treatment technologies are going to be really, really key. So we're pretty excited about all those features. We see real opportunity in the long term on even industrial water. But again, our core -- and then so forth is sort of the midstream business, the traditional midstream business and supporting our oil and gas producing customers. So that's our focus. But I will say, I do believe we can bring a lot more resources to this technology effort than they really had access to on a stand-alone basis. And so we're very excited about it. We think these opportunities are going to be beneficial in the long run.

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

Thank you so much, and thanks, everyone, for your interest in Western Midstream and your participation on this earnings call. We're really gratified that we've already been able to see the results of our prudent growth strategy by doing 2 things that are very hard to do at the same time, and that is improve our overall cost structure and process efficiency while executing on growth opportunities. In fact, the former truly enables the success of the latter, and we've only just begun on this journey. We look forward to welcoming Aris and its stakeholders to the WES partnership later this year. Thank you again to everyone on the WES team for an incredible start to the next phase of our partnership's evolution. There's still much to do, and you've already proven that you're all up to the challenge. We look forward to seeing investors and analysts at the upcoming conferences later this month. And with that, we'll close the call.

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