Western Midstream Partners, LP

Good afternoon, my name is Joelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners fourth quarter and full year 2023 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, please press star two. 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 2023 conference call. I would 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 am pleased to inform you that the Western Midstream Partners K-1 will be available via our website beginning March 8th. Hard copies will be mailed out the following week. With me today are Michael Ure, our Chief Executive Officer, and Kristen Schultz, our Chief Financial Officer. And I'll turn the call over to Michael.

Thank you, Daniel. And good afternoon, everyone. Before we discuss our fourth quarter and full year 2023 operational and financial results, I'm excited to announce that we recently executed a series of agreements to divest of Wes's remaining interest in several non-core, non-operated assets for $790 million. This includes Wes's interest in the White Thorn, Panola, and Saddlehorn Pipelines. the Mont Bellevue Joint Venture, and the Marcellus Gathering System in Pennsylvania. The proceeds from these transactions, which in the aggregate represent an attractive accretive multiple of approximately 9.6 times our 2023 adjusted EBITDA, will provide liquidity to further strengthen our balance sheet and accelerate the return of capital to our unit holders in 2024. For the past few years, we have successfully executed our strategy of divesting legacy, non-core assets, and reallocating capital into our core asset base with the goal of generating incremental business and accelerating capital return to our unit holders. Furthermore, by coupling divestitures with strategic M&A, such as the Meritage Midstream Acquisition, we have been able to cost-efficiently grow and further diversify our operated asset footprint. Additionally, as a result of WES's meaningful net leverage reduction, reduced unit count, and significant sustainable free cash flow generation, Management plans to recommend a base distribution increase of 52%, starting in the first quarter of 2024, which equates to 87.5 cents per unit on a quarterly basis and $3.50 per unit on an annualized basis. Management's confidence in the sustainability of our free cash flow generation underpins our recommendation to increase the base distribution rather than pay a material enhanced distribution in future years. While the enhanced distribution is a critical component of our capital allocation framework, we believe aligning the base distribution with the expected baseline cash generation of the business generates maximum unit holder value and allows the enhanced distribution to provide for incremental returns to unit holders when the business outperforms. Since becoming a standalone enterprise in 2020, we have also focused on growing our third-party business, maximizing our partnership with Occidental, and operating our existing assets efficiently and safely. As of year end 2023, we have grown our adjusted gross margin 22% relative to year end 2019. Additionally, by focusing on capital efficient growth and capital discipline, we have been able to grow our free cash flow from $37 million at year end 2019 to an expected $1.15 billion at the midpoint based on our 2024 free cash flow guidance. Furthermore, throughout this period, we have continued to return more value to stakeholders through our diversified, transparent capital return framework. Since January 2020, we have repurchased 15% of our unaffected unit count outstanding, inclusive of the anticipated quarterly 30 cent per unit increase. This will have resulted in an expected $500 million cumulative reduction in total distribution burden through year in 2024. The reduction in unit count, at the $3.50 per unit annualized amount also equates to roughly $230 million of reduced distributions that can be reallocated to existing unit holders starting in 2025, thus equating to such a significant per unit distribution growth rate. Additionally, we also allocated meaningful cash flow to retiring and repurchasing debt, which materially reduced leverage from WESA's 2019 high watermark of 4.6 times to an expected 3.0 times by year-end 2024. All of these actions have put our partnership at a position of strength, which has ultimately resulted in our ability to accelerate the return of capital to our unit holders and target an increase to our quarterly base distribution of 41% relative to our pre-pandemic quarterly distribution level. Even with an increase of this magnitude, we believe we will still have room to target additional base distribution increases in future years, as the business performs and free cash flow generation continues to grow. Turning to our 2023 results, 2023 was a successful and pivotal year for Wes as we achieved another year of record throughput growth across all three products, further diversified our asset and customer base through commercial successes and a creative M&A, and returned $1.1 billion to unit holders through our capital return framework. Our ability to continue capturing throughput growth from our core basins while maintaining cost and capital discipline has positioned West on solid financial and operational footing as we enter 2024. This is reflected in our strong 2024 guidance that we announced in yesterday's press release, which anticipates continued throughput growth in 2024 and into 2025 and includes the capital investment necessary to complete the construction of Mentone 3 and the majority of the North Loving plant. Our guidance also includes the impact of our announced non-core asset divestitures from yesterday. Before we discuss our fourth quarter results in more detail, I would like to highlight several accomplishments in 2023 that helped position WES for growth and success in 2024 and beyond. Focusing on the Delaware Basin, this was an extremely successful year for WES as throughput increased across all three products, resulting in record throughput from the basin. We also experienced tremendous commercial success and further diversified our customer base by adding 12 new third-party customers across both our natural gas and produced water businesses. Since late 2021, we have executed multiple long-term agreements with Occidental and other third-party customers that provide up to 950 million cubic feet per day of firm processing commitments, and our commercial team has materially increased third-party volumes on our system. These commercial successes were the primary drivers behind the sanctioning of both Mentone III and the North Loving Plant, which will increase our total processing capacity in the basin by 34% and maintain Wess's position as one of the top five natural gas processors in the Delaware Basin. These accomplishments have also helped Wess grow its third-party natural gas throughput at more than double the rate of the basin since early 2021. In the DJ Basin, throughput declines subsided in the second half of 2023. and we experienced sequential quarter crude oil and NGL's throughput growth starting in the third quarter for the first time since late 2021. In the Powder River Basin, we closed the Meritage acquisition early in the fourth quarter, which is the second largest unaffiliated corporate-level M&A transaction in WESA's history and our first significant acquisition since becoming a standalone partnership in 2020. Our M&A strategy remains focused on accretive deals that optimize the value of our existing asset base, and enable us to leverage our operational expertise to generate incremental value for our unit holders. Since closing the Meritage transaction and working to integrate it into our business, we have been pleased with its performance relative to our baseline expectations, and we have identified another $6 million of operational cost savings that we believe are achievable by the end of 2024. Furthermore, we have identified at least $6 million of incremental cost savings that can be realized from certain field-level efficiencies. With that said, we are off to a strong start and plan to make substantial progress capturing expected cost savings and implementing operational efficiencies throughout 2024. As we discussed on prior earnings calls, we strive to maintain a strong balance sheet and investment-grade credit rating with the goal of ultimately driving leverage down towards our long-term leverage thresholds in order to accelerate additional capital return to our unit holders. In 2023, West bought back $135 million of common units as well as increased our base distribution twice during the year to $2.30 per unit on an annualized basis, representing a 15% year-over-year increase. Additionally, in May of 2023, we paid our first enhanced distribution of 35.6 cents per unit or $140 million based on our 2022 financial performance. In total, We paid $978 million to unit holders in 2023 in the form of distributions, an increase of 33% compared to distributions paid in 2022. Inclusive of yesterday's announced asset divestitures and our expected 2024 guidance ranges, we expect to reduce net leverage to approximately three times by year-end 2024. Coupled with free cash flow growth and the reduction in our overall unit count, These divestitures allow us to accelerate the return of capital to unit holders through the anticipated distribution increase of 52%. With that, I will turn the call over to Kristen to discuss her operational and financial performance.