Good afternoon. My name is Shiloh [ph] and I'll 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 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remark, there will be a question-and-answer session. [Operator Instructions] 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'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 discuss today. Relevant reference materials are posted on our website. Additionally, I'm pleased to inform you that the Western Midstream Partners K1 will be available via our website beginning March 8. Hard copies will be mailed out the following week. With me today are Michael Ure, our Chief Executive Officer and Kristen Shults, our Chief Financial Officer. I will now 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 Whitethorn, Panola and Saddlehorn Pipelines, the Mont Belvieu 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 9.6x our 2023 adjusted EBITDA will provide liquidity to further strengthen our balance sheet and accelerate the return of capital to our unitholders 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 unitholders. Furthermore by coupling divestiture with strategic M&A such as Meritage Midstream acquisition we've been able to cost effect grow and further diversify our operated asset footprint. Additionally as a result of WES 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 $0.875 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 unitholder value and allows the enhanced distribution to provide for incremental…

Thank you, Michael, and good afternoon, everyone. Our fourth quarter natural gas throughput increased by 9% on a sequential quarter basis. This was almost entirely due to increased throughput in the Powder River Basin resulting from the Meritage acquisition that closed in early October. Our crude oil and NGLs throughput increased by 5% on a sequential quarter basis, also due to increased throughput in the Powder River Basin from the Meritage acquisition and increased throughput from the DJ Basin. We also experienced slightly higher throughput from the Delaware Basin quarter-over-quarter. Produced water throughput decreased by 2% on a sequential quarter basis due to temporary volume curtailments associated with activities to support adjacent producer development. Our fourth quarter currency adjusted growth margin for natural gas assets increased by $0.03 compared to the prior quarter. This increase was primarily driven by increased throughput from operated assets, including Delaware, DJ and the Powder River Basin, increased distributions from our equity investments and the favorable revenue recognition cumulative adjustment recorded in the fourth quarter associated with the higher cost of service rate pertaining to our South Texas assets. We expect our first quarter per NCF adjusted gross margin to be flat with the fourth quarter primarily due to higher go forward rate associated with the cost of service rate redetermination that are offset by the loss of volume from the recently divested Marcellus gathering system in Pennsylvania. Our fourth quarter per barrel adjusted gross margin for our crude oil and NGL assets increased by $0.16 compared to the prior quarter, primarily due to a favorable recognition cumulative adjustment recorded in the fourth quarter associated with the higher cost of service rate at our DJ Basin and South Texas oil system. We expect our first quarter per barrel adjusted gross margin to increase by approximately…

Before we open it up for Q&A, I would like to reiterate our excitement regarding the partnership's current financial and operational position and our 2024 outlook. Significant effort has been invested by our people to put our partnership into the position of strength that we are in today. In early 2020, we had more than 450 million units outstanding, net leverage of approximately 4.6x, and we faced a monumental task in building the workforce, culture and back office infrastructure necessary to establish ourselves as a standalone entity. When the pandemic hit in 2020, WES was downgraded below investment grade and we immediately took significant steps to materially reduce leverage and improve the health of the balance sheet. Since that time, we assembled a dedicated employee base focused on generating incremental business from existing customers and attracting new customers onto our system. We also adopted an entrepreneurial mentality and reexamined every aspect of our operations to identify incremental cost savings opportunities and to pursue efficiencies to improve our profitability. We've also implemented new technologies and processes to increased operational efficiencies, enhance employee development and safety and to minimize our environmental footprint. We were the first midstream MLP to pivot and focus on free cash flow as a financial performance indicator as opposed to the conventional MLP standard metrics of distributable cash flow and distribution coverage. The shift of free cash flow generation has led to strong including repurchasing 15% of our unaffected unit count and reducing our expected year-end net leverage by more than 1.5 turns since the end of 2019, when taking into account the non-core asset divestitures and 2024 financial guidance we announced yesterday. We also regained our investment grade credit rating and our ability to meaningfully improve the balance sheet put us in a position to debt finance…

[Operator Instructions] Your first question comes from Spiro Dounis with Citi.

Maybe to pick up on the distribution, if we could. Want to go through some of the implications on what this new higher payout means? So one, it sounds like you guys put a lot of thought into the sustainability of it and the ability to grow it. I guess in the near-term here, it does seem to consume a lot of your free cash flow maybe perhaps over the next two years or so. But I guess what's implicit in that is that there now seems to be some level of sort of self-restraint on CapEx and I think some of our numbers imply spending kind of below $700 million for the next few years to continue to ratably grow this distribution. So one, are we sort of reading that correctly that there is a presumption here that CapEx does decline at some sort of normalized level? And then two, as we think about what that level is, what does that mean for the growth rate from here? How much do you think you can grow with lower CapEx?

I think a couple of comments. Yes, we do see 2023 and 2024 as higher expected capital periods relative to go forward rate and really the reasons behind that are because of the two new plants that we're building that we're building that we believe are going to be able to sustain the growth level that we're expecting into the future. And so, as you look at 2025 and beyond, all things considered based on our current expectations, we would expect that capital would actually be reduced relative to the higher levels that we seen in 2023 and 2024.

And as far as what that reduced level is? I don't know if you guys have a sort of a longer term growth trajectory out there. Obviously, your plan is still to grow the distribution. Do you have a stated goal yet to sort of grow mid-single-digits, anything we could have sort of penciled in?

Yes, I would just look from a capital perspective, I'd probably turn you to 2022, which was a period of growth for us, but did not include the significant capital associated with building new plants as an indicative amount of capital what it might look like on a sustainable basis going forward. We still again believe that's going to results in positive outcomes from free cash flow generation point-of-view going forward, which is to your point the incident or the commentary that we made around the sustainability of the distribution at that level and even the potential for increased distributions going forward.

And second question quickly just to touch on the asset sales. That was something that was not on our radar, maybe it should have been. But just curious, I guess, how you describe your appetite here to continue to sell more assets? Is what you've left -- got left with now at this point screen is core?

Yes, we've actually always held the perspective that those assets were non-core to us that obviously we see great value in them, but they're not core to us. And so, should someone see more value in those assets than we do, then we would divest of them similar to what we did at the end of 2022 as well. And so, we do have some equity method investments that we've retained. We maintain the same perspective around those that they have great value to us, but shouldn't someone else see greater value than what we do then we would look to divest them in the future.

Your next question comes from Jeremy Tonet with JP Morgan.

Just wanted to maybe pick up a little bit with what Spiro was asking there. And just want to refresh view as you guys think about the current portfolio in front of you. How do you guys think about, I guess, it's a difficult question to answer, but the capital needed to kind of sustain the earnings power of business at this point as we kind of think about that going forward?

Yes. So I'd reiterate again the comment that I would probably turn you to 2022 is the best sort of indicative levels for us. As you think about a sustaining with even a lean towards growth in terms of the amount of capital necessary and that's a call it about a $0.5 billion of capital range. So, that's the best guidance that I think we can give to you as it relates to what we would expect for a sustained level to be in the absence of some of the chunkier sort of capital projects like the two plants we are building right now.

So when we think about this distribution increase as it were that you announced today, was it kind of looking at that level of CapEx as determining the right level of an increase 52% versus something higher or lower? Or just trying to see I guess how you think about the parameters of the payout going forward whether it's that or whether it's kind of free cash flow?

Yes. So a couple of things that went into that and we did a lot of analysis together with our board to take a look at it. And really it focused on number one, we put out a target a couple of years ago of where we would like to be from a leverage standpoint at the end of 2024 and that was at 3x. The 3x level we think is on the lower end, but gives us the flexibility to be able to continue to grow our business and even offers opportunity for us to buyback units opportunistically and continue to support and sustain the businesses as it relates to inorganic opportunities on the M&A side. And so, as we took a look at the health of the business, we took a look at the asset divestitures and targeted where we might be able to achieve a 3x leverage level exiting 2024. That's where we came out at the $3.50 level. Then we sensitize that on a go forward basis relative to expectations and have confidence that is a sustained level going forward and frankly even provides an opportunity for us to grow that even further into the future.

And then just one quick last one if I could. Amidst this period of kind of consolidation as we see in the midstream industry, just curious how you think WES's role in that progresses going forward at this point?

Yes, I think I'd probably point you to the recent past in that regard. I think from our standpoint, we have incredible confidence in the culture, the team, our operational capabilities to be able to go out there and acquire bolt-on acquisitions in areas which we operate that we can enhance our existing position, drive synergies through the system and then increase our free cash flow going forward. So, obviously, we're constantly scouring the landscape to be able to be open to opportunities where we can continue to do that similar to what we saw in the Meritage acquisition.

[Operator Instructions] Your next question comes from Brian Reynolds with UBS.

Maybe just a follow-up on some of the Delaware activity. As I remember, you're offloading kind of a significant amount of volumes for the North Loving and Mentone plant, Camonzo. Can you just remind us how much volumes are being offloaded currently? And kind of following on some of the growth comments like could we see another need for another plant at North Loving in the '25, '26 timeframe just given the growth trajectory particularly in the Delaware?

We would expect that once Mentone III comes online that plant is largely full. So, I think that should give you a pretty good sense for an offload volume perspective. As we see here today, we actually believe that with North Loving Train I coming online that we're sufficient to be able to handle the growth that we're projecting expecting going forward. So between Mentone III coming online shortly and then, North Loving Train I, we think that that sets us up nicely to be able to handle the growth that we're seeing in our asset base.

And maybe to touch on the recent announcements of OXY's potential divestment of WES. I appreciate the release that you guys announced about ongoing sale process. Perhaps could you just remind us about how your independent board kind of separates WES from the OXY sale process ultimately with the board structure, if you could just remind us there?

So our board is set up. We have three OXY appointees that are on the board and then the remaining five of the eight are non- OXY employees including myself.

Your next question comes from Zack Van Everen with TPH.

Just one on the DJ. I know you noted that you're still below MVC levels on the crude oil side of things. Can you remind us if you're below or above some of the MVCs, you're having processing out there?

Yes. We've got a good mix of different customers on the gas side and the DJ. And so, it just depends on a contract-by-contract basis what that looks like from an MVC perspective. But I would expect as the year is going on and we're increasing from a volumetric side on the gas side that you're seeing an increase on the EBITDA side as well.

And then following up on a previous question with Delaware growth. Once North Loving is on, do you imagine offloading some of your volumes into the future if you do grow beyond the capacity of the two new plants?

We don't currently foresee the need to be doing offloads after North Loving I is completed. We believe that the capacity that we'll have will be able to handle the growth and volumes that we're currently expecting.

Your next question comes from Gabriel Moreen with Mizuho.

This is Rob on for Gabe. Wondering if you could speak to the cost of service payments that you received in 4Q. Is that being driven by a closer scrutiny of these contracts or how this has been expected from the onset of 2023? And are you expecting similar payments as cost of service redeterminations occurred throughout the year?

So the revenue recognition that was an impact to EBITDA on the fourth quarter is actually a non-cash item. So that is just trying to align the expected revenues that should have been booked based on expectations and weren't. And so that's actually a non-cash adjustment that occurs with any of our cost of service contracts that have demand payments. So no cash associated with that. Kristen, anything else you'd add on that?

Yes. And then those are only booked in the fourth quarter. The ones that you see in the fourth quarter of 2023, we do that same exercise every year and would only be coming in the fourth quarter.

And maybe on the enhanced distribution, is the right way to think about it now that you don't really want to see big payouts with that year in, year out and you want to ensure it is being capitalized or that your base distribution is being capitalized and kind of in accordance with this run rate CapEx that you expect as you manage to that long term 3x leverage target?

So the way that the enhanced distribution framework was intended was to set a distribution level that we believe was sustainable going forward. And now that the business has continued to perform and we expect it to perform, that's where we're expecting to recommend that to the $3.50 level on an annualized basis. The enhanced distribution was intended to be where if the business does outperform and we can't find and we can't find another use for that capital that we were going to return it back to our investors. And so I think your question and your comment there definitely accurately captures the way that we're thinking about it. So, we take an assessment on a quarterly basis to be able to take a look at the health of the business and what it is that we believe that we can sustain going forward. Should it outperform relative to that and should we not find another use for that capital, that's when we would pay the enhanced distribution on an annual determination.

Your next question comes from the line of Keith Stanley with Wolfe Research.

Just wanted to follow-up -- sorry it's for the multipart question on the distribution, but a couple of things there. Just any comments you can make on how comfortable you are as a policy to have distributions above free cash flow over the long-term? How did you consider buybacks as part of this analysis just because you're getting $800 million of cash in the door as an alternative to the large base distribution increase? And then lastly, any comment you can make on conversations with the general partner on capital return strategy and how it fits with their objectives?

So, first comment there as it relates to the comfortability, I would just correct maybe one item there and that is that we don't expect that the base distribution encompasses greater than our free cash flow generation on a go forward basis. And so that's part of the level of comfort that the board and the management team has in recommending that level is that we do expect that our free cash flow generation throughout the projected period actually does exceed the distribution level. For this year, you did point out the $790 million coming in the Delaware and what that really did is it allowed us to get down to a leverage level when combined with the expected growth from EBITDA and free cash flow for the year to exit 2024 at or around 3x. And so that's really more in light of the Meritage acquisition. This is a way for us to effectively recycle that capital that we spent on Meritage by selling our equity method investments that are non-operated and sold at a much higher multiple to bring down that leverage to where we could get to a more sustainable leverage level and then pay distribution that we believe is commensurate with the free cash flow generation of the business, plus the ability to be able to lever other -- pull other levers as it relates to growth capital, M&A and buybacks as a whole. As it relates to the GP, I would say it's a very interactive level that we have with all of our board members, not just the GP as it relates to the health of the business, as it relates to what it is that we think is in the best interest of WES. We've had great support both from all of our board members, both non- OXY and OXY board members as it relates to trying to drive value overall for WES as a whole. And this is definitely a decision that was driven exclusively with the purpose of trying to drive value to our unitholders collectively in light of the incredible performance of the business and the leverage reduction that occurred as a result of the sell down of the assets.

Second one, just want to follow-up on the processing plant strategy. So you said, offloads Mentone III will basically take up all the offloads that you're doing today. You're going to have volume growth through this year. And so when North Loving comes on in the beginning of 2025, presumably you wouldn't need to offload anymore and you'd have some space left on North Loving. But can you just walk through why given how fast your system is growing in the Permian? Why you wouldn't have a need for another plant in the 2026 type of timeframe?

As we projected today, you're right and that we will have Mentone III that will largely be full when it opens up. There will still be some offloads as a bridge to when we get North Loving out there. And then according to our projections with the inclusion of North Loving, we believe today as it relates to the volume forecast that we have that that should be sufficient for us from a processing standpoint. Should obviously we get incremental commitments, incremental growth then at that point there would be additional need for us to build a plant. But as we look at it today, we don't need that.

Your next question comes from Selman Akyol with Stifel.

Just a real quick one for me. Going up to the PRB, and you said it was going to be growth for 2024 obviously for the full year. But I think you also referenced sort of growth within the basin and I'm just curious as to what kind of growth you're seeing out of that basin?

We are projecting even if you looked Selman on an annualized full annual 2023 basis compared to 2024, we actually do still project growth in the Powder River Basin 2024 on 2023. That's as it relates to both volume growth as well as EBITDA. So, we highlighted in there some of the synergies that we were able to achieve already for that acquisition and incremental opportunities that we believe may be available to us going forward. So from an EBITDA and a free cash flow growth, there's even better growth than what you might expect just from a throughput standpoint.

Your next question comes from Ned Baramov with Wells Fargo.

On this last point, are the additional Meritage cost savings and efficiencies you noted in your prepared remarks, reflected in the roughly 5x post synergy acquisition multiple or are these incremental items that could potentially further lower the multiple?

Those are incremental. So those were synergies that we did not take into account, when we reported the multiple, and all of those and anything else we find would move us lower than multiple.

And then it seems every few years, we have to talk about permitting and risks to future development in Colorado. What are you hearing on this front? And on the most recent draft bill, is there anything that's different this time around?

I would just actually highlight that the fourth quarter last year was actually the most successful quarter. I think, since those new rules came into play as it relates to the number of new permits that were achieved. And so, I think that there is increased confidence in the process that it would take. We always expected that there would be a little bit of time for companies to get familiar with what it is that it was going to take to get those approvals through. And actually the fourth quarter of last year, I think there was a lot of positivity in light of the fact that there was the most that were achieved in any other period.

Your next question comes from Neel Mitra with Bank of America.

I wanted to maybe isolate the Delaware growth and understand the drivers behind it. It's very strong, obviously. OXY said basin wide that they were going to be flat. So, first, can you maybe talk about how that affects you? I understand that it's a portfolio basis, so every system is different. But any other drivers that are helping drive the growth in '24 in the Delaware system?

So a couple of comments on that. You're right in that the commentary from OXY is a portfolio wide or a basin wide expectation, not just specific to the areas in which WES operates and its partners with OXY. There's a couple of comments I would make around it. First of all, the well performance as we highlighted has been very strong under the assets that WES services. In addition, 2023 was really the first year where they had the elevated level of activities. If you actually go back to the beginning of 2022, it was roughly half of the activity that then got stepped up around midyear of 2022. And so, you have the full year now of 2023 of that increased higher activity levels where you're seeing obviously an exit rate we exited much higher than we entered 2023. And so those tailwinds along with that continued expected activity is part of the reasons why you're seeing a lot of the growth coming out of the Delaware Basin. I would also highlight, we mentioned it in the prepared remarks that we've added a pretty meaningful amount of third-party business coming into it. And so, as we take a look at our third-party business has actually grown, the volumes on the third-party side have actually grown at double the pace of the Permian as a whole over the past couple of years. And so, for us, what it is that we're doing to focus on growing the pie as a whole for all customers and then emphasizing what it is that we can do that we're really unique in terms of our offering, our customer service focus has resulted in new third-party volumes that is accelerating that growth profile relative to what you might expect from a basin wide perspective.

And then when you think about the distribution in past 2024, understand that the Delaware, DJ and PRB are all growing this year. But how do you look at the PRB and the DJ and 25 plus under oil price environment kind of where we are right now? Do you expect continued growth or flat lining? Just understanding the expectations there to underwrite the distribution growth.

So a couple of things. Actually for 2024, we're really expecting growth across all of our operated assets, irrespective of area or basin. And so we're quite optimistic as it relates to the performance of those assets, not only for 2024 as we look into future periods as well. And so that's part of the reason why there's great confidence in the sustainability at this stage for the distribution increase of $3.50 and why we think that there may even be incremental opportunities to increase that further into the future.

There are no further questions at this time. Mr. Ure, I turn the call back over to you.

Thank you all for joining the all. I want to again express my appreciation for all of the WES employees for their extra strong effort to put us in the position that we are today. We look forward to speaking with you three months from now to discuss the results of our first quarter 2024 performance. Thank you all.

And this concludes today's conference call. You may now disconnect.