Western Midstream Partners LP (WES) 2021 Q2 法說會逐字稿

Welcome. Thanks for joining us today for our second quarter post-earnings fireside chat with Michael Ure. I'm Kristen Shults, our SVP of Finance and Communications here at Western Midstream.

And excited to have you here with us today, Michael.

Hello.

Let's start out by talking about capital. Why are we seeing an increase in capital for the second quarter as compared to the first? And how should we think about the rest of the year as it relates to capital?

So the second quarter was an expected increase relative to first quarter. If you recall, the first quarter, we were a little hampered as it relates to Uri, which disrupted some of our projects or delayed some of our projects. So our expectation was always the second quarter would be higher than first quarter from a capital perspective.

What has changed since that time is that we have had great success in attracting new business and an increase overall in activity levels on our position, which has resulted in an increase in the expectations of total capital for the year, more back-half oriented as we prepare for those volumes to come on to our system starting really in 2022 and beyond.

Turning towards EBITDA, what's the cadence of EBITDA for the remainder of 2021?

We had great outperformance from a second quarter perspective. We had a little bit of underperformance in the first quarter as a result of Uri. And so as you look at the remainder for the totality of 2021, we expect to be above the midpoint of our guidance range.

As we start thinking about 2022, what expectations do you have around 2022?

We have not provided guidance specifically yet as it relates to 2022, but a couple of things that we have noted is that as we exit 2021, we are exiting at a growth trajectory that did not happen as we entered 2021. And so expectations are that, that growth trajectory would project forward in a positive manner as it relates to 2022 compared to the way that we entered into 2021.

The second comment is a reflection of the increased capital that we're expecting to spend in 2021, where that is very volume-oriented capital, mainly in well connects and additional compression that are a result of the expectations of additional volumes coming on to our system, which are likely to be appreciated in 2022 and beyond. So the capital that we're spending this year is a reflection of the expected growth in the system that we will be appreciating the value of in 2022.

Looking at 2021 capital, there seems to be a large increase that should occur in the second half of the year. Should we be using the second half of 2021 capital as a proxy for 2022 capital?

We wouldn't recommend looking at the back half of 2021 for a proxy for what we would expect in 2022 at this point. Again, the increase in capital for 2021 is a reflection of an increase in activity levels across the system. We have yet to go through the budget process for the majority of our producers and frankly, for all of our producers. And therefore, our expectations for 2022 capital are not yet built into the system. But would not necessarily look at the back half of 2021, which has been an acceleration and an increase in the overall activity levels relative to expectations. From a capital perspective, we'll provide more details once we have better insight into what those activity levels for our producer customers will look like going into 2022 and 2023 for that matter for the volumes that we will have to bring on to the system during those periods.

Turning towards the Delaware. As the activity increases, do you foresee any capacity constraints in the Delaware and a need for additional processing capacity. Would you consider an acquisition to help you expand your current capacity?

As we sit here today, we do not foresee the need for increases overall in the mainline infrastructure necessary in order to gather the volumes that we're expecting into 2022. Our primary focus has been on finding other ways that we can utilize the existing capacity that exists in the area that we operate in, whether it's through offloads or other arrangements with customers who might have an excess of capacity where our system may not, should that be the occasion that we find ourselves in. So as we look at capital for 2022 from a relationship to 2021, we actually expect it to be a pretty similar ratio and spend profile, not necessarily in terms of levels, but in terms of where that capital is likely to be spent in 2022 and beyond.

As it relates to acquisitions, obviously, we'll continue to look at ways that we can enhance our business overall. A couple of advantages that we have is we have a phenomenal customer base, and we've got a great existing backbone infrastructure inasmuch as there are acquisition opportunities that would plug into that infrastructure and help us alleviate some potential capacity constraints, and we'll definitely take a look at those avenues to accrue value for our stakeholders. But as we look here today, our focus is on just gathering the existing volumes and try utilizing the excess capacity that may exist in the system.

And now towards the DJ. Can you provide additional details around the recently discussed Crestone deal?

Yes. So Crestone dedicated approximately 74,000 acres in the Watkins area to WES as well as an -- up to an additional 148,000 acres that may be acquired and connected into the system. It's a long-term contract, minimal capital requirements for us. The increase overall in volumes in our system, we expect to happen in 2022 and beyond. So not necessarily a great impact as it relates to 2021. We do look at that, however, as a strong indication of our great relationships with our customers, of our competitiveness from an operating cost and capital cost perspective as well as the importance that we've given to all of our customers overall as we've refocused our efforts from a stand-alone company perspective.

And towards finance, can you provide your thoughts on capital allocation?

Yes. Our first priority continues to be overall leverage reduction, which we've made significant progress on over the past couple of years. We also are focused on delivering the distribution growth target that was outlined about 6 months ago overall of being able to return additional distribution to our customers because of the efforts that we've employed on reducing our unit count as well as our overall debt expense, interest expense on that debt. We'll continue to opportunistically look for unit repurchases overall. It's a program that we think definitely has value. We have $201 million of outstanding availability under that program and plan to opportunistically employ that program over the remainder of the year.

Western Midstream seems to be generating significant free cash flow at this point. Any thoughts on growing the distribution by more than 5% in the near term? And if so, would you consider a gradual increase or a material step-up?

It's a great question and an exciting one overall for us because it highlights the fact that we made such progress on the overall leverage reduction effort as well as significant progress on our free cash flow generation as a company. And so it's a great opportunity, one in which we relish to have the conversation with the Board at the appropriate time once we've achieved some of the key targets or at least have a path towards achieving some of the key targets that we have set out to be able to reassess the levels of distribution and/or ways in which we can return capital to our stakeholders.

Before we close, do you have any additional comments to share with the listeners?

The final thought I'd like to leave is, obviously, we're very proud of the position that we find ourselves in today, the improvements that we've made from an operational and financial perspective. Very much looking forward to the future. The recent results is an indication of the optimism that we have with regards to the growth that is available to us as a company. So really excited about the progress we've made and frankly, really excited about the opportunities that we have going forward for all those who have participated with us over the past little while and for those who will participate with us in the future.

Great. Thanks, Michael.

And thanks, everyone, for joining us today. If you have any questions, please feel free to reach out. My contact information is on our website at westernmidstream.com. Thank you.