Western Midstream Partners, LP

Good day and welcome to the Western Midstream Partners' fourth quarter 2020 earnings conference call. All participants will be in listen-only mode. Since you need assistance today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Kristen Schultz, Vice President, Investor Relations and Communications.

Please go ahead. Thank you. I'm glad you could join us today for Western Midstream's fourth quarter 2020 conference call. I'd like to remind you that today's call, the accompanying slide deck, and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference our public filings for a description of risk factors that could cause actual results to differ materially from what we discussed today. Relevant reference materials are posted on our website. Additionally, I'm pleased to inform you that the Western Midstream Partners K-1s will be available on our website beginning March 12th. Hard copies will be mailed out several days later. With me today are Michael Ure, our Chief Executive Officer and Chief Financial Officer, and Craig Collins, our Chief Operating Officer. I'll now turn the call over to Michael.

Thank you, Kristen, and good afternoon, everyone. Yesterday, we reported fourth quarter 2020 adjusted EBITDA of $484 million as a meaningful reduction in producer activity throughout the year relative to our plan, culminated with a decrease in fourth quarter throughput across all products. Remarkably, despite this reduced activity, we reported full year 2020 adjusted EBITDA in excess of $2.0 billion, a year-over-year increase of more than $310 million, or 18%. Due to our increased focus on cost and capital discipline, West delivered fourth quarter 2020 free cash flow totaling approximately $465 million, a 37% sequential quarter increase. For the full year 2020, we generated free cash flow totaling $1.2 billion. That's roughly 10% of our year-end enterprise value. Early in 2020, we pivoted our focus to free cash flow as a financial performance indicator, as opposed to the conventional MLP standard metrics of distributable cash flow and distribution coverage. By operating within free cash flow, we better align company and stakeholder interests of building a long-term successful organization, and while providing results that offer comparability in and outside our industry to demonstrate our excellent free cash flow and total return profile. During 2020, we generated $530 million of free cash flow after distributions by reducing cash capital expenditures by approximately 65% from 2019 and reducing the distribution. Although 2020 was the first year our company generated positive free cash flow after distributions, we have made a fundamental shift in our mentality as an organization to ensure this success continues. As we started 2020, we recognized it would be a historic year for West. as we executed several agreements with Occidental in December 2019 that established WES as a standalone midstream company. The ensuing global pandemic two months later confirmed this historic nature of 2020, but not for the reasons we initially believed. While the pandemic created numerous challenges that were not unique to us, our team seized the opportunity to re-examine every aspect of our operations to identify incremental cost-saving opportunities and pursue efficiencies. This deep dive into our business continued producer outperformance, and additional cost efficiency realizations from deconsolidation enabled West to exceed all expectations in our first year as a standalone company. Removing more than $175 million of O&M and G&A costs compared to our original 2020 guidance contributed to the highest annual adjusted EBITDA in Western Midstream's history. We compounded these cost savings with the efficient execution of our capital program, landing $590 million below the original 2020 guidance midpoint and $100 million below the revised 2020 midpoint. We priced a $3.5 billion four tranche senior notes offering, which was 6.2 times oversubscribed with more than $21 billion of demand. At the end of the third quarter, we announced a $250 million common unit buyback program, of which we've repurchased $49 million as of today's call. The careful protection and efficient management of our balance sheet and the significant work by our employees to discover cost savings enabled us to return more than $1.2 billion to stakeholders through debt repurchases, cash distributions, unit buybacks, and units acquired through the Anadarko Note Exchange. Furthermore, as a result of the unit buyback program and the Note Exchange, we've increased our free cash flow after distributions by over $22 million. On a year-over-year comparison, we increased throughput in every one of our products, with a 1% increase in natural gas throughput, 7% increase in crude oil and NGLs throughput, and a 28% increase in water throughput. Our teams implemented mutually beneficial commercial solutions with producers to keep volumes on our system and generate incremental capital advantage EBITDA for WES, while also providing near-term relief to customers adversely affected by lower demand for its products. Operationally, we benefited from the completion of three significant projects in 2020. The second Latham train, which commenced operations in the first quarter, added 250 million cubic feet per day of total processing capacity in the DJ Basin, and train three and train four at the Loving Roto in the Delaware Basin, the latter of which was completed nearly two months ahead of schedule and required 35% less capital than our previous North Loving trains. Our staff put forth a tremendous effort to complete these organizational and operational changes in 2020 and we're confident that the foundation we developed will continue to enter to the benefit of our stakeholders in 2021. This provides us with momentum to work toward further sustainable cost efficiencies safe and superior customer service and returning value to stakeholders. Our previously communicated 2021 guidance of adjusted EBITDA between $1.825 and $1.925 billion and capital expenditures between $275 and $375 million, along with maintaining our year-end debt to adjusted EBITDA ratio at or below 4.0 times is currently unchanged. While we are still evaluating the full financial impact of the recent winter storm, which will adversely affect our first quarter results, we do expect to make up those impacts throughout the year. We've already seen increased activity across the DJ and Delaware basins at the end of 2020 and into 2021. And we expect these increased activity levels to continue throughout 2021, allowing us to exit the year at higher throughput levels than our 2020 exit rate. With the increase in activity, we expect our capital requirements to be slightly front-end loaded to the first half of 2021. We also anticipate that our EBITDA will trend upward throughout the year as increased activity levels yield increased throughput. Overall, we expect the DJ Basin to account for 37% of our asset-level EBITDA, with an additional 40% coming from the Delaware Basin. In a few moments, Craig will provide further detail around activity levels and capital requirements, but I wanted to take a few minutes to discuss the impact of our cost-of-service rate contracts on 2021 guidance. As a result of declining 2020 volumes, we experienced upward pressure on cost-of-service rates. Fortunately, the impact of these increases was partially, and in some cases more than entirely, offset by the significant cost and capital savings achieved in 2020, which we believe will be sustainable on a go-forward basis. Specifically, our Delaware water and oil cost of service rates decreased as a result of these achievements. These cost savings and resulting downward pressure on cost of service rates demonstrate the symbiotic relationship that West values with its producer counterparts. We will continue to push forward cost reduction initiatives. These savings are proportionally shared with our partners, which we believe will continue to incentivize additional business. These are all reasons why WES is positioned to be the midstream provider of choice within the areas we operate, a goal we take very seriously. These anticipated rate changes were taken into consideration as we released our initial guidance at the end of third quarter. The impact of the rate changes was deemed immaterial to the total guided amount, and that remains the same after our final calculations. Our 2021 guidance also includes nearly all of the $175 million of cost savings realized in 2020. Through optimization efforts in our existing assets, the transition to a standalone business model, and strengthening our relationship with Occidental, we've identified sustainable opportunities that improve operability, more efficiently deploy capital, and ultimately drive value for our stakeholders. To reiterate our third quarter call, our strategic contractual protections minimize the impact a potential decline in throughput has on our EBITDA. Using 2021 guidance as an example, if DJ and Delaware throughput levels decrease by an additional 10%, it would result in only a 5% to 6% decline in our asset level EBITDA. With that, I'll turn the call over to Craig, to discuss our fourth quarter operations and provide more thoughts on 2021 activity and capital requirements.