Western Midstream Partners, LP

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners fourth quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, 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, again press the star one. 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 fourth quarter and full year 2022 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-gap 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 Western Midstream Partners K-1 will be available on our website beginning March 9th. Hard copies will be mailed out several days later. With me today are Michael Ure, our Chief Executive Officer, and Kristen Schultz, our Chief Financial Officer. I'll now turn the call over to Michael.

Thank you, Daniel, and good afternoon, everyone. We are pleased to report another strong year of operational and financial performance at Western Midstream. As we recorded the highest net income at adjusted EBITDA in the history of our partnership, we announced our 2023 guidance, which is primarily driven by continued throughput growth in the Delaware Basin, offset by DJ Basin declines, the capital investment necessary to complete the construction of Mentone Train 3, and the growth capital needed to support continued throughput growth expected in 2024. Also, I'm very pleased to announce that we have recommended an enhanced distribution to our Board of Directors that, if approved, would be paid in conjunction with our first quarter 2023 base distribution in May. all of which I will discuss in more detail later in the call. Before we discuss our fourth quarter results in more detail, there are several accomplishments in 2022 that have been instrumental in positioning WES for future growth and success. Specifically, our commercial teams created tremendous value for WES and built the foundation necessary to proceed with the decision to sanction Mentone Train 3. We executed multiple long-term amendments with Occidental to their natural gas processing and crude oil treating agreements. supported by minimum volume commitments. In aggregate, these amendments provide up to 500 million cubic feet per day of incremental peak firm processing capacity and up to 57,000 barrels per day of peak firm treating capacity on our infrastructure. We expect volumes associated with these amendments starting in 2023 and growing over the coming years. We also executed a long-term agreement with ConocoPhillips to service dedicated volumes and provide firm capacity on our system. We have already benefited from this agreement in 2022, and we anticipate ConocoPhillips to remain one of our largest natural gas GMP customers over the coming years. In aggregate, our teams achieved great commercial success with third-party producers throughout the year. By year-end 2022 in the Delaware Basin, third-party volumes accounted for approximately 56% of our natural gas throughput as compared to 52% at year-end 2021 and 20% of our produced water throughput as compared to 13% at year-end 2021. These commercial successes increased our confidence in sustainable volume growth and the need for Mentone Train 3 to fulfill these future obligations. I'm pleased to report that the construction of Mentone Train 3 is progressing according to our initial expectations and should be operational by the end of fourth quarter 2023. We also executed a letter of intent with Occidental last year with the objective of pursuing opportunities to produce and deliver low carbon intensity oil and gas products to market through the development of carbon dioxide capture, transportation, utilization, and sequestration opportunities in and around our existing asset bases in the Delaware and DJ basins. Our teams continue to evaluate ways to create value for both organizations, and we look forward to updating you on our progress later this year. We also executed two notable M&A transactions in the second half of 2022. The acquisition of our partner's 50% equity interest in the Ranch West Texas Natural Gas Processing Facility for $40 million, which is already tied into our West Texas complex, and the sale of our 15% interest in the Cactus II crude oil pipeline for $265 million, which included approximately $2 million of pro rata distributions through closing. These transactions were in line with our M&A philosophy of allocating capital towards accretive transactions and increasing our processing stack in the Delaware Basin. Additionally, upon closing the sale of Cactus II, we increased our unit buyback program to $1.25 billion, demonstrating our commitment to creating additional value for our unit holders through our capital return framework. This time last year, we refined our financial policy and established our enhanced distribution structure. And in 2022, we executed on this capital return framework by increasing our base distribution, retiring debt, and buying back almost 50% of our initial three-year unit buyback authorization amount, which was subsequently increased by $250 million within the first year. Specifically, we increased the base distribution by approximately 56% to $2 annualized per unit beginning with our first quarter, 2022, base distribution that was paid in May of 2022. In calendar year 2022, we paid out an aggregate amount of $736 million in base distribution payments. We retired $504 million of senior notes in 2022, driving our year-end net leverage ratio to 3.1 times, well below our year-end threshold of 3.4 times. In January 2023, we retired $213 million of floating rate senior notes. Our next debt maturity comes due in 2025. With this recent retirement, all of our remaining senior note obligations are fixed rate. In 2022, we repurchased 19.5 million units, for aggregate consideration of $488 million at an average price of approximately $24.96 per unit. This included the repurchase of approximately 1.6 million units for aggregate consideration of $41 million in the fourth quarter of 2022. We estimate that our 2022 unit buyback activity will reduce future base distribution obligations by approximately $39 million in aggregate on an annualized basis. We have recommended to our board that they consider an enhanced distribution payment based on our strong 2022 financial performance, our current business outlook, and our greatly improved balance sheet. Our consistent efforts over the past several years resulted in net leverage of 3.1 times at year-end 2022. As we look to the future, we expect our adjusted EBITDA and free cash flow generation to remain strong, permitting us to continue funding the near-term needs of our business with operating cash flow. Additionally, by repurchasing $488 million of units and reducing net debt by $128 million, we have permanently reduced our annual interest and distribution burden, which more than offsets the loss of free cash flow from the sale of Cactus II. Therefore, we recommended that the Board use its discretion and consider WES' 2022 net proceeds from asset sales of $224 million as cash flow available for distribution when it formally considers an enhanced distribution in April. Based on these considerations, we expect to announce an enhanced distribution of $140 million, or approximately 36 cents per unit based on current unit count outstanding, to be paid in conjunction with our first quarter 2023 base distribution in May. We view our overall capital return framework and specifically our enhanced distribution as a way to create substantial long-term value for our unit holders and to further differentiate West relative to our midstream peers. With that, I will turn the call over to Kristen.