Western Midstream Partners, LP Common Units (WES) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows mixed signals: moderate growth in EBITDA, reduced capital expenditures, and a slight increase in distribution. However, throughput declines in key basins and cautious acquisition pacing offset these positives. The Q&A session reveals management's confidence in strategic projects but lacks clarity on timing and financial impacts of initiatives, which could lead to investor uncertainty. Overall, the sentiment is balanced by optimistic guidance and strategic growth plans, but tempered by operational challenges and lack of guidance specifics, resulting in a neutral stock price outlook.
Key Financial Performance
Adjusted EBITDA $683 million, increasing 7% sequentially and 15% compared to the prior year period. Reasons for change include the full quarter contribution from the Aris acquisition, per day throughput growth across all three product lines, and successful cost reduction efforts.
Natural Gas Throughput in Delaware Basin Increased 3% sequentially to slightly over 2 billion cubic feet per day. Reasons for change include increased throughput despite higher Waha-driven curtailments.
Crude Oil and NGL Throughput Achieved record throughput of 272,000 barrels per day, which increased 4% sequentially and 6% year-over-year. Reasons for change include the timing of wells that came to market during the quarter.
Produced Water Throughput Achieved record throughput, increasing 4% sequentially to approximately 2.8 million barrels per day. Reasons for change include the full quarter contribution from the Aris acquisition and continued growth in the legacy WES water business.
Per Mcf Adjusted Gross Margin for Natural Gas Assets Increased by $0.06 on a sequential-quarter basis. Reasons for change include higher overall commodity pricing on excess natural gas liquids volumes under fixed recovery contracts and decreased revenues in the fourth quarter of 2025 associated with the annual cumulative catch-up adjustment in South Texas.
Per Barrel Adjusted Gross Margin for Crude Oil and NGLs Assets Increased by $0.30 compared to the prior quarter. Reasons for change include the absence of unfavorable revenue recognition cumulative adjustments recorded in the fourth quarter of 2025 for the DJ Basin in South Texas.
Per Barrel Adjusted Gross Margin for Produced Water Assets Increased by $0.07 due to the full quarter impact from the Aris acquisition and increased skim oil recoveries at higher commodity pricing.
Net Income Attributable to Limited Partners $342 million. Reasons for change include higher commodity pricing on excess natural gas liquids, increased skim oil volumes, and the absence of unfavorable noncash revenue recognition cumulative adjustments recorded in the fourth quarter of 2025.
Distributable Cash Flow $509 million. Reasons for change include higher adjusted gross margin and contributions from the Aris acquisition.
Operation and Maintenance Expense Increased approximately 5% quarter-over-quarter. Reasons for change include the full quarter contribution from the Aris acquisition.
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Operating Highlights
Aris Acquisition Contribution: The full quarter contribution from the Aris acquisition significantly boosted throughput and adjusted EBITDA.
Brazos Delaware II Acquisition: Announced a $1.6 billion acquisition of Brazos Delaware II, which includes natural gas and crude oil gathering systems, expanding the Delaware Basin footprint and increasing gas processing capacity by 20%.
Delaware Basin Expansion: The Brazos acquisition strengthens the Delaware Basin asset base, adding 470,000 dedicated acres and 900 miles of pipeline.
Customer Base Diversification: The Brazos acquisition diversifies the customer base with new high-quality third-party customers and reduces producer concentration risk.
Record Adjusted EBITDA: Achieved record adjusted EBITDA of $683 million, a 7% sequential and 15% year-over-year increase.
Throughput Growth: Natural gas throughput in the Delaware Basin increased by 3%, crude oil and NGL throughput grew by 4%, and produced water throughput rose by 4% sequentially.
Cost Reduction Efforts: Successful cost reduction efforts improved operating leverage and earnings power.
Strategic M&A Philosophy: The Brazos acquisition aligns with the strategy of enhancing asset value, diversifying the customer base, and generating incremental adjusted EBITDA and free cash flow.
Long-Term Contract Structures: Brazos Delaware's contracts have a weighted average remaining life of 9.2 years, supporting cash flow durability.
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Risk or Challenges
Waha natural gas pricing volatility: Persistent low and sometimes negative Waha natural gas pricing is causing throughput curtailments in the Delaware Basin. This pricing volatility is expected to continue through the second quarter, impacting revenue and operational stability.
Powder River Basin throughput decline: Throughput in the Powder River Basin is expected to decline by approximately 10% to 15% year-over-year in 2026. This decline is attributed to softness in Rocky Mountain natural gas pricing and deferred completions, which could adversely affect revenue from this region.
Integration risks of Brazos acquisition: The $1.6 billion acquisition of Brazos Delaware II involves integration challenges, including optimizing the performance of the expanded processing complex and realizing synergies. Failure to integrate effectively could impact expected financial benefits.
Commodity price dependency: The company's financial performance is heavily influenced by commodity prices. While elevated prices have benefited recent results, any downturn in commodity prices could negatively impact adjusted EBITDA and distributable cash flow.
Operational cost increases: Operation and maintenance expenses are expected to increase by 10% to 15% in 2026, driven by asset maintenance, repair work, and higher utility costs. These rising costs could pressure margins if not managed effectively.
Customer curtailments: Certain customers in the Delaware Basin are curtailing throughput due to low natural gas pricing, which could impact overall throughput and revenue.
Regulatory and environmental risks: The company operates in regions with potential regulatory and environmental challenges, particularly in the Delaware Basin, which could affect operations and project timelines.
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Guidance & Outlook
Annual Guidance Ranges: The company expects to be towards the high end of both the adjusted EBITDA and distributable cash flow ranges for 2026, without considering the impact of the Brazos transaction. Adjusted EBITDA guidance range is $2.5 billion to $2.7 billion, and distributable cash flow guidance range is $1.85 billion to $2.05 billion.
Brazos Acquisition Impact: The Brazos acquisition is expected to contribute approximately $100 million of incremental adjusted EBITDA in 2026 and is immediately accretive to 2026 distributable cash flow per unit. The transaction is valued at approximately 8x 2027 estimated EBITDA, declining to 7.5x with synergies.
Capital Expenditures: 2026 capital expenditures are expected to range between $850 million to $1 billion, with half directed towards the Pathfinder produced water pipeline and North Loving II projects, both expected to come online in 2027.
Throughput Expectations: Portfolio-wide average year-over-year throughput is expected to remain flat for natural gas, decline low to mid-single digits for crude oil and NGLs, and increase by approximately 80% for produced water in 2026. Delaware Basin natural gas throughput is expected to increase by low to mid-single digits.
Commodity Pricing and Margins: Second quarter per Mcf adjusted gross margin is expected to align with the first quarter, with an average adjusted gross margin of approximately $1.28 per Mcf for 2026. Crude oil and NGLs adjusted gross margin is expected to range between $3.10 and $3.15 per barrel for 2026. Produced water adjusted gross margin is expected to average approximately $0.91 per barrel for the year.
Powder River Basin Activity: One of the largest producers in the Powder River Basin plans to accelerate activity levels in the back half of 2026 to increase volumes earlier in 2027. Throughput in the basin is expected to decline by 10% to 15% year-over-year in 2026, with higher activity levels anticipated in 2027.
Waha Natural Gas Pricing: Waha natural gas pricing is expected to improve in the second half of 2026, contributing to confidence in 2027's potential.
Distribution Guidance: The company expects to achieve a full-year distribution of at least $3.70 per unit in 2026, with a focus on growing adjusted EBITDA mid- to low-single digits and increasing distribution coverage over time.
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Shareholder Return Plan
Quarterly Distribution: Declared a quarterly distribution of $0.93 per unit, which is a 2.2% increase over the prior quarter's distribution. This is in line with the full-year guidance of at least $3.70 per unit, including distributions paid within calendar year 2026.
Annualized Distribution: The quarterly distribution of $0.93 per unit translates to an annualized distribution of $3.72 per unit.
Distribution Growth Strategy: Focused on growing the distribution at a rate slightly less than the mid- to low-single-digit adjusted EBITDA growth rate to increase distribution coverage over time.
Capital Return Framework: The company maintains a capital return framework that includes growing the distribution over time while increasing distribution coverage and preserving a peer-leading total capital return.
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Key Q&A
Q:How does the company view its organizational capability to pursue incremental deals after acquiring Aris and Brazos?
A:The company has completed the integration of Aris and is confident in its ability to integrate Brazos Delaware, which is a simpler asset deal involving 60-70 field-based employees. Management acknowledges the need to pace acquisition opportunities and balance them with ongoing major growth projects. They aim to remain disciplined and cautious about what the organization can handle.
Q:What are the company’s plans for growth in behind-the-meter power generation and CO2 services?
A:The company established a new ventures business group to focus on long-term adjacencies. Near-term opportunities include produced water beneficial reuse, with a desal plant pilot project being scaled up. CO2 services are seen as a longer-term opportunity, with potential in CO2 shale enhanced oil recovery and sequestration. Behind-the-meter power generation is also being explored, particularly for self-help power generation in West Texas.
Q:Can you provide more clarity on the contributions and cadence of the Brazos acquisition?
A:The $100 million estimate for Brazos is based on the base business, with synergies and operational improvements expected over the next 12 months. Integration is expected to be quick due to the contiguous nature of the assets and the simplicity of the transaction.
Q:What is the company’s outlook for growth through 2027?
A:The company is optimistic about growth through 2027, driven by projects like North Loving II and Pathfinder, as well as PRB producer activity and easing Waha volatility. They are confident in the Delaware Basin, which will contribute about 65% of EBITDA post-Brazos acquisition. The DJ Basin’s growth potential is being monitored, and the company is optimistic about the longer-term outlook, especially if commodity prices improve.
Q:What is underwriting the company’s guidance for 2026?
A:The company expects to be near the high end of guidance for 2026 due to increased commodity prices and gross margins. While there are more commercial conversations, no significant volume increases are expected until late 2026 or 2027.
Q:What is the status of commercializing the Pathfinder pipeline?
A:The company is seeing increased commercial activity, particularly in water management in the Delaware Basin. Pathfinder is positioned as a fully integrated solution for water management, including produced water, recycling, disposal, and long-haul transport. The company is confident in the returns of the Pathfinder asset.
Q:What cost-saving optimization efforts are being implemented?
A:Cost-saving efforts are focused on operations and maintenance expenses, including maintenance and repairs, contractor spend, and supply chain efficiencies. The company is also exploring tools like AI to improve corporate efficiency.
Q:What is the company’s long-term outlook for growth CapEx?
A:Sustaining capital is expected to be in the $400-$600 million range annually, depending on well production and decline curves. Growth capital could approach $1 billion annually, driven by high-return organic projects and programmatic M&A opportunities.
Q:What is the cash flow conversion potential from the Brazos deal?
A:The Brazos assets have a high cash flow conversion rate of over 90%. Maintenance CapEx is expected to average around $20 million annually, with minimal incremental capital needed to connect systems. The company anticipates filling available capacity through offloads and gas throughput growth.
Q:What is the strategic importance of the company’s other natural gas assets?
A:The company values its other assets, including those in the Uinta Basin, South Texas, and Southwest Wyoming. These assets are seen as complementary to the core business, and divestitures are not a priority unless higher-return opportunities arise.
Q:What is the company’s approach to capital allocation, including M&A and buybacks?
A:The company focuses on programmatic M&A and organic growth opportunities, particularly in the Permian Basin and New Mexico. They recently repurchased over 15 million units from Oxy as part of a contract renegotiation. Opportunistic buybacks are not a current priority.
Q:How is the company managing supply chain challenges for processing expansions?
A:The company is focused on forecasting and securing long-lead components like electrical equipment and cryo units. They maintain relationships and orders to ensure flexibility and minimize delays.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact timing and financial impact of some initiatives, such as the commercialization of CO2 services and behind-the-meter power generation. Additionally, while they discussed potential divestitures, they did not provide clear criteria or timelines for such actions.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Basin activity
Basin footprint
Basin gas
Delaware Basin
Holdings LLC
Midstream Holdings
Powder River
activity level
adjustment
commodity price
commodity pricing
competitiveness effort
contribution acquisition
cost reduction
curtailment
digit decline
discussion commodity
drilling location
environment leverage
fee
foot day
gas liquid
gas pricing
level order
leverage cost
mile
oil volume
order volume
outperformance
philosophy
pricing gas
processing complex
quality
quarter
recovery
skim oil
throughput Delaware
transaction
WES Transcript
Western Midstream Partners, LP Common Units (WES) Q1 2026 Earnings Call Transcript
Positive5-12
The earnings call highlights strong financial performance with a 10% revenue increase and a 15% rise in net income, indicating operational efficiency. The Q&A section confirms the positive trajectory with successful integration of the Aris acquisition, contributing to EBITDA growth. Despite the absence of discussions on strategic initiatives or risks, the financial metrics and optimistic guidance suggest a positive market reaction.
Western Midstream Partners, LP Common Units (WES) Q1 2026 Earnings Call Transcript
Unknown5-9
The earnings call summary shows mixed signals: moderate growth in EBITDA, reduced capital expenditures, and a slight increase in distribution. However, throughput declines in key basins and cautious acquisition pacing offset these positives. The Q&A session reveals management's confidence in strategic projects but lacks clarity on timing and financial impacts of initiatives, which could lead to investor uncertainty. Overall, the sentiment is balanced by optimistic guidance and strategic growth plans, but tempered by operational challenges and lack of guidance specifics, resulting in a neutral stock price outlook.
Western Midstream Partners, LP Common Units (WES) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call reflects a positive outlook with strong throughput growth driven by the Aris acquisition, cost reduction initiatives, and steady distribution increases. The Q&A section highlighted disciplined M&A strategies, proactive solutions for pricing volatility, and significant interest in new projects like Pathfinder. Despite some vague responses, the overall sentiment is positive, with optimistic growth projections in key areas and strategic initiatives that are likely to boost the stock price.
Western Midstream Partners, LP Common Units (WES) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary indicates positive elements such as increased adjusted gross margin, decreased operation and maintenance expenses, and strong cash flow. The Q&A section reveals sustainable cost management initiatives and potential for distribution step-ups, enhancing investor confidence. The acquisition of Aris Water Solutions and the expansion plans in New Mexico further support growth prospects. Despite some uncertainties, the overall sentiment is positive, likely leading to a stock price increase in the short term.
WES Slides
WES Report
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