Western Midstream Partners, LP

Good afternoon. My name is Lauren, and I'll be your conference operator today. At this time, I would like to welcome everyone to the midstream fourth quarter and full year 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. I would now like to turn the conference over to Kristen Schultz, Senior Vice President, Finance and Sustainability.

Please go ahead. Thank you. I'm glad you could join us today for Western Midstream's fourth quarter and full year 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 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. Additionally, I'm pleased to inform you that the Western Midstream Partners K-1s will be available on our website beginning March 4th. Hard copies will be mailed out several days later. 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. Yesterday, we were pleased to report another strong year of operational and financial performance at Western Midstream. Despite the negative impacts from Winter Storm Uri that we experienced in the first half of the year, we also announced our 2022 guidance and refined our corporate financial policy by establishing an annual enhanced distribution payable in conjunction with the first quarter base distribution starting in 2023 both of which I will discuss in more detail later in the call. Turning to the fourth quarter, volumes across all three products increased sequentially, primarily driven by continued outperformance from the Delaware Basin and higher volumes on our equity investment assets. As a result, we materially exceeded our year-end exit rate throughput expectations for crude oil, natural gas liquids, and produced water and met our expectations for natural gas. Adjusted EBITDA for the fourth quarter totaled approximately $481 million. This 10% sequential decline was due primarily to the following. In the third quarter, we recorded a favorable one-time catch-up revenue adjustment of $19 million associated with previously constrained revenue and $26 million of unfavorable revenue recognition cumulative adjustments recorded in the fourth quarter associated with lower cost of service rates. predominantly at the DJ Basin oil system. These are non-cash adjustments impacting adjusted EBITDA and net income attributable to limited partners, but do not impact free cash flow. We also had a very strong quarter from a cash flow perspective. Cash flow from operations totaled $662 million, resulting in $577 million of free cash flow generation, This material increase in free cash flow compared to the prior quarter was primarily due to increased throughput and favorable working capital changes. Turning our attention to full year 2021, we are proud to have surpassed all of our financial metric expectations. We recorded adjusted EBITDA of approximately $1.95 billion, which exceeded the high end of our $1.825 to $1.925 billion guidance range. This was primarily driven by producer outperformance in the Delaware Basin, stronger than expected commodity prices, commercial success in adding third party customers, and realized cost efficiencies across our business. This positioned West to deliver operating cash flow of approximately $1.77 billion, an increase of 8% year over year. During the year, we remain focused on diligently allocating capital between our various pillars of capital return, while still fulfilling the needs of our organization. In addition to certain projects pushing into 2022, our teams also worked hard to enhance capital efficiencies. As a result, our capital expenditures for the year totaled $324 million, well within our $275 to $375 million guidance range. This continued focus on capital efficiency helped us generate approximately $1.5 billion of free cash flow and $956 million of free cash flow after distributions. We used much of our free cash flow position to further reduce leverage, meaningfully exceeding our year-end 2021 leverage ratio target of 4.0 times through the retirement of $431 million of senior notes due in 2021. and the tendering of $500 million of senior notes due 2022 through 2026. These actions enabled us to achieve a year-end leverage ratio of 3.6 times or 3.5 times on a net basis after taking into account the $202 million of cash on our balance sheet at year-end. Our continuous focus on diligently reducing leverage provides multiple benefits. In January 2022, we received an upgrade for West Operating's long-term debt to BBB- from Standard & Poor's, the partnership's first investment grade rating since the pandemic-driven downgrades in 2020, which will increase the partnership's access to debt capital markets under more favorable pricing structures going forward. We increased the distribution 5% year-over-year, paying a $1.27 per unit cash distribution, meeting our per unit cash distribution guidance of at least $1.24. Finally, we completed our $250 million unit repurchase program by repurchasing 13.6 million units in 2020 and 2021 at an average unit price of $18.41, an approximate 29% discount to our current unit price of $25.81 as of February 18th. Since becoming a standalone midstream enterprise, we continue to make tremendous progress in strengthening our balance sheet and generating value for our unit holders. Since the January 2020 bond issuance, we have retired $1.15 billion of our debt, or 14% of the debt balance, and 41.4 million units, or approximately 9% of the unit count. We have also paid out approximately $1.2 billion in distributions to both our limited and general partners, all of which have resulted in $2.9 billion of total capital returned, or approximately 18% of our year-end 2021 enterprise value, generating substantial value for our unit holders. On a per-unit basis, we have now returned $4.02 through debt retirement and unit repurchases and $2.98 in distributions for a total of $7 returned to unit holders since the onset of the pandemic. which excludes any market-driven appreciation in our current unit price. With that said, assuming our current unit price as of February 18th, we have repurchased the equivalent of $1.1 billion of our current market valuation. Generating value and returning cash to our unit holders while protecting the health of our balance sheet continues to be the top priority for our partnership. With this in mind, we're excited to discuss our refined financial policy and enhanced distribution structure. We believe our financial policy provides a clear path that details how we intend to create additional value for our stakeholders as we generate significant free cash flow over the coming years. We are proud of the value that we've already created, and this policy is expected to further deleverage the enterprise and return additional capital to unit holders. Our value generation will continue to revolve around our three core pillars of reducing leverage, increasing the distribution, and repurchasing units. As such, we anticipate taking the following actions. First and foremost, we expect to retire over $715 million of aggregate principal amount of senior notes. with approximately $502 million due in 2022 and $213 million due in 2023 using free cash flow. In addition, we're incentivized to achieve year-end net leverage of 3.4 times in 2022, 3.2 times in 2023, and 3.0 times in 2024 on a net debt to trailing 12-month adjusted EBITDA basis as part of our refined financial policy. We believe achieving an ultimate net leverage of 3.0 times will allow us to better navigate and opportunistically capitalize on future market dislocations. Based on current market conditions and estimates, we plan to declare a quarterly base distribution of 50 cents per unit effective with our first quarter 2022 distribution, which is an increase of approximately 53% compared to the distribution declared in the fourth quarter of 2021. The new base distribution will result in an annualized cash distribution of $2 per unit. Based upon our multi year forecast, we feel confident that the distribution increase is sustainable and allows for remaining free cash flow after the distribution to be directed toward our other core pillars of capital return. Since we completed our previous repurchase program at the end of 2021, We plan to commence a new $1 billion unit repurchase program that we intend to opportunistically execute through year-end 2024. We believe our new repurchase program will be an integral part of our financial policy, enabling us to generate additional value for our unit holders through varying market conditions. Finally, beginning in 2023, we have established a framework for paying an annual enhanced distribution in conjunction with the first quarter base distribution. The target amount of this enhanced distribution will be equivalent to free cash flow in the previous year after subtracting the prior year's debt repayments, base distributions, and unit repurchases. It is also contingent on attaining the prior year-end net leverage thresholds after taking the enhanced distribution for such prior year into effect of 3.4 times in 2022, 3.2 times in 2023, and 3.0 times in 2024. The enhanced distribution will be paid only if we reach our stated leverage threshold and generate excess free cash flow after taking into account the previously mentioned items. As always, distributions are subject to the Board's review and approval. Since becoming a publicly traded partnership, we've consistently returned available cash back to our unit holders. The enhanced distribution structure allows us to accelerate the return of capital to our unit holders keep leverage and the health of our balance sheet central in all decision making, and provide additional clarity to unit holders as we continue to generate significant annual free cash flow into the future. To the extent leverage increases because of internal or external factors, the excess free cash flow that would have been directed towards the enhanced distribution would be used to reduce leverage, thereby ensuring the sustainability of the enterprise. Our ability to meaningfully increase the base distribution, and establish an enhanced distribution structure as a direct result of our constant focus on reducing costs, increasing operational efficiencies, and maintaining a disciplined approach to capital spending. This provides us a great foundation and positions us well to drive net leverage down to 3.0 times by 2024. The annual enhanced distribution structure strengthens our overall financial policy and demonstrates our strong commitment to maintaining balance sheet health and returning value to unit holders. It is a distinct competitive advantage for Wes and further differentiates us from our peers. Turning to 2022, strong commodity prices continue to support private and public producer activity levels as we transition into the new year. We expect the Delaware Basin to comprise 50% of our asset level EBITDA for 2022 as strong throughput continues. In the DJ Basin, we remain optimistic regarding the permitting process for new wells. but the slow pace of approvals continues to be a headwind for activity levels, and we currently expect the basin declines we experienced at the end of 2021 to continue into 2022. We expect the DJ Basin to contribute approximately 30% of our asset level EBITDA in 2022. We anticipate 2022 adjusted EBITDA to range between $1.925 and $2.025 billion, predominantly due to our expectation of increased year-over-year Delaware Basin throughput. Lower cost of service rates across the portfolio coupled with lower distributions from our equity method investments will partially offset the adjusted EBITDA uplift we would expect to see as a result of increasing Delaware Basin throughput. As a reminder, Anticipated increased activity levels beginning in 2023 and continued focus on cost and capital efficiencies drove cost of service rates lower across the portfolio effective January 1, 2022. Additionally, we are seeing increasing operational expenses in line with the continued expansion of our Delaware Basin asset footprint and inflationary pressures, specifically for chemicals and maintenance and repair projects. Craig will focus on the details of our capital spending plan shortly, but I want to express my excitement regarding expected future activity levels. The increase in 2022 capital requirements is a result of our preparation for these increased activity levels, which we expect to begin in 2023. Thus, we have set our 2022 capital at a range of $375 to $475 million. Taking both our adjusted EBITDA and capital spending guidance into account, we expect to generate free cash flow of $1.2 to $1.3 billion in 2022, which will provide more than enough liquidity to retire our 2022 debt obligation and fund our $2 per unit annualized base distribution. I'll now turn the call over to Craig to discuss our operational performance. Craig?