Western Midstream Partners, LP

and welcome to the Western Midstream Partners Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, 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 telephone. To withdraw your question, please press star then two. Please note, This event is being recorded. I would now like to turn the conference over to Kristen Schultz, Vice President, Finance and Communications. Please go ahead.

Thank you. I'm glad you could join us today for Western Midstream's third quarter 2021 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 Western Midstream's most recent Form 10-K and Form 10-Q and other 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. With me today are Michael Ure, our Chief Executive Officer, and Craig Collins, our Chief Operating Officer. I'll now turn the call over to Michael.

Thank you, Kristen, and good afternoon, everyone. As you saw from yesterday's earnings release, we are pleased to report another quarter of strong operational and financial performance at Western Midstream. We generated net income available to limited partners of $250 million that resulted in adjusted EBITDA of $532 million, representing increases of 11% and 8% respectively compared to the prior quarter. Our third quarter performance was the result of increased throughput in the Delaware Basin, continued commercial success, lower operating expenses, and the positive impact associated with the reversal of previously constrained revenue. We continued to generate significant free cash flow in the third quarter by focusing on operational efficiencies, reducing our overall cost structure, and remaining disciplined with our capital spending program. We generated $320 million of free cash flow and $185 million of free cash flow after distributions. We increased our third quarter distribution to $0.323 per unit, representing a 1.3% increase over the prior period and in line with our target of 5% annualized growth. The third quarter also represented our third consecutive quarter of distribution increases since the onset of the pandemic. Before Craig discusses our operational performance, in particular our outperformance in the Delaware, I would like to mention a few factors that affected our third quarter financial performance. Starting at year-end 2020, under revenue recognition accounting standards, we constrained revenue related to certain third-party cost-of-service contracts associated with a gathering asset. Based on our current expectation, we no longer believe the previous constraint is warranted. As a result, we recorded a cumulative catch-up revenue adjustment of approximately $19 million during this quarter. While this adjustment impacted our adjusted gross margin and adjusted EBITDA for the quarter, it did not impact our free cash flow. Turning to expenses, as expected, O&M expense declined 8% on a sequential quarter basis, as the one-time charges in the second quarter did not extend into the third quarter. We now expect the near-term O&M run rate to be more in line with our third quarter results, while still recognizing that there is a variable component to O&M associated with throughput. Ad valorem taxes decreased by 24% on a sequential quarter basis due to a favorable adjustment to our year-to-date accrual recorded in the third quarter as asset valuations were finalized. G&A expense increased over 13% on a sequential quarter basis, primarily related to increased personnel expense and contracting consulting costs. As we mentioned last quarter, we expect G&A to remain at this level as we work to fully transform our company into the best-in-class standalone enterprise that we envision. With our strong third quarter performance, coupled with the impact of the cumulative revenue catch-up adjustment, we now expect to exceed the high end of our previously announced 2021 adjusted EBITDA guidance range of $1.825 to $1.925 billion. We also expect to be below the high end of our 2021 capital expenditure range of $275 to $375 million, as some of the capital is now expected to shift into 2022, thus reducing capital requirements for the year. Additionally, we have continued to optimize our assets. For example, in the Delaware Basin, where our engineering team implemented design modifications to increase our nameplate rotif capacity by 20% per train, resulting in a total increase in oil treating capacity by 36,000 barrels per day. These modifications were made with minimal investment and highlight a clear example of our team finding capital efficient solutions to expand our operational capabilities. Moving to the balance sheet, we exited the third quarter with $100 million of cash and $1.8 billion of availability on our revolving credit facility, resulting in total liquidity of approximately $1.9 billion. Total outstanding debt was $7.2 billion, resulting in a 12-month trailing net leverage ratio of approximately 3.7 times at quarter end. well below our year-end 2021 target of 4.0 times and closing in on our year-end 2022 target of 3.5 times. In late August, we successfully executed a tender offer, retiring $500 million in aggregate principal of our outstanding senior notes for a total purchase price of $522 million. With this tender, we have reduced our annualized interest expense by $21 million and extended the weighted average time to maturity of our debt from 12.5 to 13.1 years. Since our bond issuance in January 2020, we have retired $1.15 billion of our senior notes, and we intend to continue retiring near-term maturities using free cash flow. During the third quarter, we received an upgrade for West Operating's long-term debt from BB to BB Plus from S&P. This upgrade reaffirms the success we have had in improving the health of our balance sheet. We are of the view that we have already achieved investment grade metrics, and we believe others share that sentiment based on investor feedback received during the tender process. I'm also pleased to report that as of September 30th, we have repurchased approximately $137 million of common units under the authorized $250 million unit repurchase program. of which approximately $88 million of common units was repurchased during the third quarter. Through the unit buyback program and the Anadarko Note Exchange, we have retired approximately 36 million units, and we will continue to opportunistically repurchase units with the remaining authorization. As you have seen over the last several quarters, we have made tremendous progress in strengthening our balance sheet. Since the January 2020 bond issuance, we have retired $1.15 billion of our senior notes, or 14% of the senior note balance, and 36 million units, or 8% of the unit count. We have also paid out approximately $1.1 billion in distributions to both our limited and general partners, which has resulted in approximately $2.6 billion of total capital returned to our stakeholders. Said differently, on a per unit basis, We returned $3.69 through debt retirement and unit repurchases and $2.62 per unit in distributions for a total of $6.31 returned to unit holders since the onset of the pandemic. I would also like to note that this analysis does not consider any market driven appreciation in our quarter end unit price of $20.96 that resulted from the actions we have taken since the beginning of 2020. Additionally, through these actions, we've increased our annualized free cash flow after distributions by $83 million and expect to further increase these savings through continued debt reduction. With this track record and as market conditions allow, we look forward to creating additional value for our stakeholders through buying back more units, paying down debt, and increasing our distribution over time. I'll now turn the call over to Craig to discuss our operations in the third quarter.