Western Midstream Partners, LP

Good morning. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners fourth quarter 2025 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, press the star followed by the number 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 2025 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. I'm pleased to inform you that the Western Midstream Partners K1 will be available via our website beginning Wednesday, March 11th. Hard copies will be mailed out the following week. With me today are Oscar Brown, our Chief Executive Officer, Danny Holderman, our Chief Operating Officer, and Kristen Schultz, our Chief Financial Officer. I will now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. 2025 was another incredibly successful and strategically meaningful year for Western Midstream that can be defined by record-adjusted EBITDA and free cash flow generation, primarily driven by throughput growth across all products, and from the Delaware and DJ Basins, while focusing on cost competitiveness to support our long-term growth plans. Throughout the year, the Delaware and DJ Basin set multiple quarterly throughput records, enabling WES to meet or exceed our annual throughput expectations and full-year financial guidance ranges. Additionally, the ARIS acquisition in late 2025 further enhanced our asset base by expanding our produced water solutions capabilities and establishing a more substantial presence in New Mexico. Taken together, our 2025 achievements, including successful organic growth projects, accretive M&A, efficiency gains, and cost reduction successes, as well as contract renegotiations, all strengthen our operating leverage and position us for sustainable growth while maintaining a strong balance sheet and low leverage profile. As we progress later into 2025 and now into 2026, macroeconomic and commodity price-driven volatility have increased. Kristen will provide more details on our 2026 guidance metrics shortly, but based on recent discussions with our producing customers and taking into account their updated forecasts, it has become clear that many of our producers will reduce previously expected activity levels on acreage that we service, including portions of the Delaware Basin. This, in combination with lower adjusted gross margin per unit for our natural gas assets, driven by changes in contract mix and lower commodity prices, are expected to result in more moderate rates of growth for overall throughput and adjusted EBITDA in 2026 relative to our initial expectations. While we had already anticipated and communicated lower activity levels and declining production in the DJ and Powder River basins, Oxy has recently reallocated a portion of their activity from acreage that we service in the Delaware basin. Based on Oxy's most recent forecast, we expect a portion of that activity to begin returning to our acreage starting in 2027, although scenarios are still being evaluated and will continue to maintain flexibility. This activity shift moderates our expected 2026 throughput growth in the Delaware Basin relative to earlier expectations, and we now expect partnership-wide natural gas throughput to be flat and crude oil and NGL throughput to decline by low to mid-single digits on average year-over-year. With that said, our long-term outlook of mid-to-low single-digit adjusted EBITDA growth remains intact, as evidenced by our 6% adjusted EBITDA growth reported in 2025 and our expectation of 5% adjusted EBITDA growth in 2026 at the midpoint of our guidance range. We remain confident in our producers' long-term development plans, especially when you consider the fact that the majority of undrilled inventory within Oxy's Delaware Basin portfolio remains located on acreage that we service. While 2026 is proving to be more of a transition year than we initially anticipated, our business remains underpinned by stable, long-term contract structures, many of which include minimum volume commitments that support financial stability in a lower activity environment. As you can see from the reduction in our 2026 capital expenditure program from at least $1.1 billion in prior communications to $925 million at the midpoint of our updated guidance range, we are able to quickly modify our capital program to align our spending with revised producer activity levels. In short, our long-term growth strategy is unchanged. The ARIS acquisition will contribute meaningfully to adjusted EBITDA in 2026, and by issuing equity for a portion of the ARIS consideration, we preserve the financial flexibility necessary to continue pursuing value-accretive opportunities and commercially creative solutions such as the restructuring of our Oxy-Delaware Basin natural gas gathering contract in exchange for WES units. Additionally, our cost reduction initiatives are making WES a leaner, more efficient organization, positioning us to better compete for new business and to benefit from operational leverage when activity levels recover, especially considering extremely bullish power-driven natural gas demand fundamentals expected in the coming years. Returning to our recent accomplishments and focusing specifically on the fourth quarter, We generated record adjusted EBITDA of $636 million, even after $29.5 million of negative, non-cash, cumulative revenue recognition adjustments. Excluding these adjustments, we would have recorded adjusted EBITDA of $665 million, representing an approximate 5% sequential quarter increase. Our fourth quarter performance was primarily driven by increased crude oil and NGL throughput in the Delaware Basin, the contribution of two and a half months of produced water volumes from the ARIS acquisition, and reduced operation and maintenance expense from Legacy West's assets, which excludes the impact of ARIS. The Delaware Basin remained our primary growth engine during the quarter, with crude oil and NGL volumes rebounding as more wells came online and produced water volumes increased driven by the ARIS acquisition. However, this was mostly offset by lower natural gas volumes in the Delaware Basin, largely due to third-party curtailments tied to low Waha hub pricing throughout the quarter, as well as expected volume declines in the Powder River Basin and lower crude oil and NGL volumes in the DJ Basin. Waha hub pricing remains a persistent industry-wide challenge affecting producers and midstream providers. While WESA's direct commodity price exposure to Waha is limited, some of our third-party producers are more directly tied to Waha pricing, which led to throughput curtailments throughout the fourth quarter. These curtailments have continued intermittently in the first quarter of this year, and near-term Waha pricing remains volatile. We expect continued pricing pressure through at least the first half of 2026, which will likely impact Delaware Basin natural gas throughput over the next two quarters. However, we expect new egress coming into service in the second half of the year to begin alleviating some of this pricing pressure. With that said, our marketing team is actively working with our producing customers to identify more diversified near-term pricing exposure to maintain economic production, as well as to secure longer-term solutions, including long-haul capacity to the Gulf Coast. For full year 2025, throughput increased across all three products and was driven by throughput records in both the Delaware and DJ basins, which resulted in some of the highest levels of adjusted EBITDA and free cash flow in our partnership's history. Other key operational and financial milestones include the sanctioning of the Pathfinder pipeline and the execution of long-term produce, water gathering, and disposal agreements The completion of North Loving Train 1, which was brought online ahead of schedule and under budget in the first quarter, and expanded our West Texas complex processing capacity by 250 million cubic feet per day to approximately 2.2 billion cubic feet per day. The sanctioning of North Loving Train 2, which is still expected to commence operations early in the second quarter of 2027. The acquisition of Aris Water Solutions, which materially increased our produced water solutions capabilities. established a more substantial presence in New Mexico, and provided a much stronger foothold in the produce water gathering and disposal, recycling, and treating for beneficial reuse businesses, a 4% year-over-year increase in the distribution, which allowed West to maintain a strong capital return profile and leading total capital return yield, and maintaining our strong balance sheet with net leverage around three times throughout 2025, including the financing of the ARIS acquisitions. Focusing specifically on the ARIS acquisition, integration has progressed exceptionally well and is ahead of schedule and mostly complete. The acquisition has strengthened our commercial organization, expanded our capabilities, and increased direct engagement from our producing customers now that the platform has been fully brought under the WES umbrella. WES now has one of the largest and most integrated water footprints in the Delaware Basin with the ability to provide all of today's water solutions including fresh water, recycling, gathering, long-haul transportation, and disposal, as well as a leading position in the emerging beneficial reuse treatment technology business. We have also achieved $40 million of targeted cost synergies, and approximately 85% of those savings should be realized by the end of the first quarter, with a remainder by year-end 2026 as legacy contract and license terms expire. To date, we have completed several major integration milestones, including the full consolidation of ERP and purchasing systems, the consolidation of operations and project management systems, vendor contract harmonization, and the complete integration of IT and HR systems, which includes the migration to WES's payroll and benefit plans. I would like to extend my sincere appreciation to all teams across both WES and ARIS. This was an extremely complex undertaking, and our teams rose to the challenge with tremendous professionalism and dedication. In addition to the successful integration of ARIS and the associated cost savings, we made substantial progress in enacting process efficiency improvements across the organization under our multi-year cost reduction initiatives. Kristen will provide more details later, but when excluding the ARIS acquisition impact, we achieved three consecutive quarters of declining operations and maintenance expense in 2025. In fact, when excluding mostly reimbursable utility costs and the ARIS acquisition impact, Operations and maintenance expense decreased by more than $100 million when annualizing the first quarter of 2025 relative to the fourth quarter of 2025. Additionally, excluding acquisition-related expenses and non-cash equity-based compensation, 2025 general administrative expense would have been flat year-over-year even after strategically retaining select personnel and functions from ARIS. like beneficial reuse and commercial operations, and taking routine annual compensation growth into account. Our engineering and construction team has also re-evaluated certain facility designs, which will lower a portion of our expansion capital outlay in 2026 and beyond. This demonstrates the continued commitment from all teams to lower costs while pursuing our growth mandate and maintaining operational excellence. You will continue to see the benefits of our cost reduction efforts throughout this year as our teams fully execute on already identified initiatives, and advance the next set of opportunities. As the Legacy West and ARIS operations, engineering, and construction teams continue to integrate, we expect to unlock additional efficiencies beyond the previously communicated $40 million of targeted synergies. The teams have already identified several incremental opportunities across both produce water systems, and we will continue evaluating and prioritizing these throughout the first half of 2026. With that, I'll turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the fourth quarter.