Western Midstream Partners, LP

good afternoon my name is brent and i will be your conference operator today at this time i would like to welcome everyone to the western midstream partners second quarter 2023 earnings conference call all lines have been placed on mute to prevent any background noise after the speaking remarks there will be a question and answer session if you would like to ask a question during this time simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. 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 second quarter 2023 conference call. I'd like to remind you that today's call, the accompanying slide deck, and last night's earning release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent 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, Kristen Schultz, our Chief Financial Officer, and Danny Holderman, our Senior Vice President, Southern Operations. I will now turn the call over to Michael.

Thank you, Daniel, and good afternoon, everyone. During the second quarter, we experienced increased natural gas and crude oil and NGOs throughput, which was driven by continued throughput growth from our Delaware-based assets, a recovery in volumes from our assets in Utah and Wyoming, and higher throughput from our equity investments. In fact, this was our second consecutive quarter of record-breaking natural gas and crude oil and NGOs throughput in the Delaware Basin. And the inclement weather that impacted our Utah and Wyoming assets during the first quarter subsided during the second quarter. While our natural gas and crude oil and NGOs throughput and the associated adjusted gross margin increased on a sequential quarter basis, our adjusted EBITDA declined slightly primarily due to higher operation and maintenance expense due to the seasonal increase in utilities and higher field level personnel expenses, and increased property and other taxes. As a reminder, our first quarter property and other taxes decreased substantially due to a reduction in the ad valorem property tax accrual. As such, second quarter property and other taxes have returned to a more normalized level. While the Delaware Basin natural gas and crude oil and NGOs throughput increased on a sequential quarter basis, These increases were below our initial expectations, primarily due to producer operational challenges that appeared during the second quarter. Based on our analysis, producer operational challenges include delays in wells coming to market, unplanned maintenance, and base well performance issues. Several new wells that came online during the second quarter outperformed relative to initial expectations, and this outperformance led to challenges across the production chain, specifically with producer-based wells. Based on discussions with our producers and after analyzing their revised forecasts, we expect these issues to be temporary in nature, but will continue into the second half of 2023. As such, we expect total average year-over-year throughput growth to increase at a slower pace than initially expected. These revised throughput expectations for the remainder of the year will result in WES coming in below the low end of our previously disclosed 2023 adjusted EBITDA guidance range. Therefore, we are revising our adjusted EBITDA guidance range to now be between $1.95 to $2.05 billion for 2023, or a $100 million decrease at the midpoint. Kristen will provide more detail on our revised expectations later in the call. With that said, we continue to provide the highest level of system reliability and will continue to work hand-in-hand with our producers to provide flow assurance, and together optimize field productivity. Providing superior customer service is a core value at West, and our ability to maintain reliable flow assurance has been a driving factor behind the successful addition of multiple new customers over the last few years. In fact, we have been able to effectively manage our system and provide higher levels of system operability in the second quarter compared to the first quarter, even with the extreme heat as we experienced in West Texas this summer. Additionally, We remain confident in our producers' ability to deliver on their volume expectations over the long run, and these recent well results further support our belief that our assets service some of the best rock in the Delaware Basin. In fact, based on the outperformance of these recent wells, we expect higher base production in future periods coupled with a lower overall decline rate. Without a doubt, this year is proving to be more of a transition year for West than we originally anticipated. However, even though our 2023 throughput expectations and our associated adjusted EBITDA are declining relative to our initial expectations, we are still supported by stable, long-term contract structures that contain either minimum volume or cost of service commitments. In situations such as these, when current year cash flow expectations decline due to volumetric changes, the protections included in our cost of service contract should benefit WES in future periods. allowing us to still earn our stated rate of return over the life of the contract. Pivoting back to our recent accomplishments and subsequent to quarter end, we announced a 12.5% increase to the base distribution, increasing the quarterly amount to just over 56 cents per unit, starting with the second quarter 2023 distribution. We firmly believe that our base distribution is an important recurring component of our balanced financial policy. Even though we expect adjusted EBITDA and free cash flow growth to slide into 2024, our stable long-term contract structures give us confidence that we can sustain our base distribution through commodity cycles and producer forecast revisions. The minimum volume commitments and cost of service protections embedded in our contracts, coupled with our ability to meaningfully de-risk our enterprise by reducing leverage and securing additional firm processing commitments, gives us comfort that our business can support and maintain an increased base distribution. We also took advantage of opportunities in the market to repurchase $118 million of our senior notes due in 2025 through 2030, and these activities continued into the third quarter. Our ability to opportunistically deploy cash towards reducing our debt further strengthens our balance sheet, even as adjusted EBITDA declines relative to our initial expectations. Increasing the base distribution and reducing debt further demonstrates our commitment to our balanced approach to capital return. Turning to operations, over the past year, our commercial team has generated substantial value for our partnership by executing multiple long-term agreements that provide up to 950 million cubic feet per day of firm processing commitments, which are supported by either minimum volume commitments or substantial acreage dedications. We are already benefiting from a portion of these volumes, but most of them are expected to come into our system in West Texas over the coming years. We also announced the sanctioning of our North Loving plant, which should be operational by year end 2024 or early 2025. The most recent amendment to Occidental's natural gas processing agreement to provide up to 300 million cubic feet per day of firm processing capacity provides even greater certainty regarding West's future profitability and underpins our decision to sanction this additional plant. Going forward, we continue to look for ways to expand our asset base to support throughput growth in a capital-efficient manner. With that, I will turn the call over to Kristen to discuss our operational and financial performance.