WESTERN MIDSTREAM ANNOUNCES 2024 GUIDANCE AND NON-CORE ASSET SALES FOR AGGREGATE PROCEEDS OF $790 MILLION
- Execution of agreements to divest non-core assets for $790 million with a multiple of 9.6 times 2023 Adjusted EBITDA.
- 2024 guidance includes Adjusted EBITDA of $2.2-2.4 billion, total capex of $700-850 million, and Free cash flow of $1.05-1.25 billion.
- Plans to recommend a 52% base distribution increase, starting with a $0.30 per unit quarterly increase in Q1 2024.
- Expectations of strong financial performance driven by throughput growth and operational efficiencies.
- Focus on returning capital to stakeholders through sustainable Free cash flow generation and Base Distribution increases.
- Conference call scheduled for February 22, 2024, to discuss Q4 and full-year 2023 results, and 2024 guidance.
- None.
Insights
The announcement by Western Midstream Partners, LP (WES) regarding the divestiture of non-core assets for $790 million and the subsequent guidance for 2024 reflects a strategic shift towards optimizing its asset portfolio and strengthening its financial position. The sale at an aggregate multiple of approximately 9.6 times 2023 Adjusted EBITDA is noteworthy as it indicates a valuation that is above the industry average for midstream asset transactions, which typically range from 6 to 8 times EBITDA. This suggests that WES managed to negotiate favorable terms, likely due to the quality of the assets or favorable market conditions.
The projected increase in the Base Distribution by 52-percent is a significant move that signals management's confidence in the partnership's ability to generate sustainable Free cash flow. Investors will view this as a positive indicator of the company's financial health and a potential for increased returns. However, it is crucial to monitor the partnership's ability to maintain this increased distribution level without compromising its long-term financial stability or growth prospects.
The focus on Free cash flow is particularly important as it allows for a clearer assessment of the company's performance, excluding non-cash expenses and changes in working capital. An increase of 19-percent at the midpoint in Free cash flow, as projected, would provide WES with greater flexibility for capital allocation, potentially enhancing unitholder value. The emphasis on Free cash flow over Enhanced Distributions suggests a prioritization of consistent, predictable returns to stakeholders.
The midstream sector, where WES operates, is characterized by its reliance on long-term contracts and stable cash flows, making it less volatile than the upstream sector. WES's strategy to divest non-core assets and focus on its operated asset base is a move to streamline operations and concentrate on areas with higher returns and growth potential. The company's focus on the Delaware Basin, a region known for its prolific oil and gas reserves, aligns with industry trends where operators are concentrating on core regions to optimize production and logistics.
WES's decision to invest 81-percent of its capital expenditures in the Delaware Basin is indicative of its commitment to this strategy. The construction of new facilities like the North Loving plant is expected to support future growth and process additional volumes, which is crucial for maintaining competitiveness in the midstream space. Investors and analysts will likely scrutinize the execution of these capital projects, as delays or cost overruns could impact the projected financial outcomes.
Furthermore, the resolution of legal proceedings associated with the sale of certain assets removes potential uncertainties and legal liabilities, which is a positive development for investors. The clarity and resolution of legal matters can often have a stabilizing effect on stock prices and investor sentiment.
The closure of outstanding legal proceedings as a result of the sale of interests in Enterprise EF78 LLC and Whitethorn Pipeline Company LLC is a significant legal development for WES. Legal disputes can pose risks to a company's financials due to potential settlements or judgments and they can also distract management from core business objectives. The resolution of these proceedings not only eliminates a source of financial risk but also enhances the company's reputation and investor confidence.
It is essential for stakeholders to consider the legal aspects of such transactions, as they can have material impacts on a company's operational and financial performance. The expeditious resolution of legal disputes is often seen as a positive by the market, as it reduces uncertainty and potential liabilities that could affect the company's valuation. Stakeholders will also be interested in any future legal strategies WES might employ to mitigate risks associated with its operations and asset portfolio.
EXPECTS TO RECOMMEND A 52-PERCENT BASE DISTRIBUTION INCREASE
- Subsequent to quarter-end, entered into a series of agreements to sell WES's equity interests in multiple non-core assets for aggregate proceeds of
$790 million - Provided 2024 guidance ranges of
$2.20 0 billion$2.40 0 billion$700.0 million $850.0 million $1.05 0 billion$1.25 0 billion - 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 quarterly Base Distribution increase of
$0.30 $1.20 - Providing 2024 Base Distribution guidance of at least
$3.20 $0.87 5$3.50 $2.30
"For the past few years, we have successfully executed our strategy of divesting non-core, non-operated assets and redeploying that capital into our operated asset base with the goal of driving operational efficiencies alongside additional growth, thus creating incremental value for our unitholders. Additionally, our ability to execute accretive, M&A transactions such as the Meritage Midstream acquisition, has allowed us to cost-efficiently grow and further diversify our asset footprint," said Michael Ure, President and Chief Executive Officer.
"Through these divestitures, WES is expected to generate approximately
"Since becoming a standalone partnership in 2020, we have worked diligently to pursue cost and capital efficiencies, bring additional volumes onto our systems, and maximize the overall value of our asset base. We have implemented new technologies and processes to increase operational efficiencies, enhance employee development and safety, and minimize our environmental footprint, all while maintaining a conscious eye on reducing costs. Furthermore, we have been incredibly focused on returning more capital to our stakeholders through our diversified, transparent capital-return framework," Mr. Ure continued.
"The shift to Free cash flow generation has paved the way to strong results, including repurchasing 15-percent of our unaffected unit count, and following the closing of these non-core asset divestitures, we would expect our net debt to EBITDA to decrease by more than 1.5 times by year-end 2024 relative to 2019. These actions have put our partnership in a position of strength, resulting in our ability to accelerate the return of capital to our unitholders and target an increase in our Base Distribution by 52-percent relative to our prior quarter's distribution. As we have in the past, we will continue to evaluate the Base Distribution on a quarterly basis with the intention of approving a level of distribution that is sustainable and aligned with the outlook of our business. 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," concluded Mr. Ure.
2024 GUIDANCE
Based on the most current production forecast information from our producer customers, and including the impact of our non-core asset divestitures, WES is providing 2024 guidance as follows:
- Adjusted EBITDA(1) between
$2.20 0 billion$2.40 0 billion - Total capital expenditures(2) between
$700.0 million $850.0 million - Free cash flow(1) between
$1.05 0 billion$1.25 0 billion - Full-year 2024 Base Distribution of at least
$3.20
"The financial outlook for WES remains strong as we transition into 2024, which we expect will be driven by another year of throughput growth that generates material increases in both Adjusted EBITDA and Free cash flow," commented Kristen Shults, Senior Vice President and Chief Financial Officer. "Based on these growth expectations, we anticipate Adjusted EBITDA to range between
"Similar to years past, the
"As the construction of Mentone III and North Loving continues in 2024, and we prepare for continued throughput growth, we expect total capital expenditures to range between
"Finally, taking into consideration our expectations of year-over-year Adjusted EBITDA growth and our projected capital expenditure needs, we estimate our Free cash flow will increase by approximately 19-percent at the midpoint, which positions WES to continue returning capital to stakeholders. As demonstrated with our plan to recommend an increase to the Base Distribution of 52-percent for the first quarter, we remain committed to returning more of WES's Free cash flow to investors over time as the business continues to grow," Ms. Shults continued.
"Management's confidence in the sustainability of Free cash flow led to our decision to recommend an increase to 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 our baseline cash generation expectations for the business generates maximum unitholder value and allows the Enhanced Distribution to provide for incremental returns of capital when the business outperforms," concluded Ms. Shults.
CONFERENCE CALL TOMORROW AT 1:00 P.M. CT
As previously announced, WES will host a conference call on Thursday, February 22, 2024, at 1:00 p.m. Central Time (2:00 p.m. Eastern Time) to discuss its fourth-quarter and full-year 2023 results, and 2024 guidance. To access the live audio webcast of the conference call, please visit the investor relations section of the Partnership's website at www.westernmidstream.com. A small number of phone lines are available for analysts; individuals should dial 888-390-0546 (Domestic) or 617-892-4906 (International) ten to fifteen minutes before the scheduled conference call time. A replay of the live audio webcast can be accessed on the Partnership's website at www.westernmidstream.com for one year after the call.
For additional details on WES's financial and operational performance, please refer to the earnings slides and updated investor presentation available at www.westernmidstream.com.
ABOUT WESTERN MIDSTREAM
Western Midstream Partners, LP ("WES") is a master limited partnership formed to develop, acquire, own, and operate midstream assets. With midstream assets located in
For more information about WES, please visit www.westernmidstream.com.
This news release contains forward-looking statements. WES's management believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this news release. These factors include our ability to meet financial guidance or distribution expectations; our ability to safely and efficiently operate WES's assets; the supply of, demand for, and price of oil, natural gas, NGLs, and related products or services; the successful closing of the divestitures noted above; our ability to meet projected in-service dates for capital-growth projects; construction costs or capital expenditures exceeding estimated or budgeted costs or expenditures; and the other factors described in the "Risk Factors" section of WES's most-recent Form 10-K filed with the Securities and Exchange Commission and other public filings and press releases. WES undertakes no obligation to publicly update or revise any forward-looking statements.
(1) A reconciliation of the Adjusted EBITDA range to net cash provided by operating activities and net income (loss), and a reconciliation of the Free cash flow range to net cash provided by operating activities, is not provided because the items necessary to estimate such amounts are not reasonably estimable at this time. These items, net of tax, may include, but are not limited to, impairments of assets and other charges, divestiture costs, acquisition costs, or changes in accounting principles. All of these items could significantly impact such financial measures. At this time, WES is not able to estimate the aggregate impact, if any, of these items on future period reported earnings. Accordingly, WES is not able to provide a corresponding GAAP equivalent for the Adjusted EBITDA or Free cash flow ranges.
(2) Accrual-based, includes equity investments, excludes capitalized interest, and excludes capital expenditures associated with the
(3) Full-year 2024 Base Distribution (paid in 2024) of at least
WESTERN MIDSTREAM CONTACTS
Daniel Jenkins
Director, Investor Relations
Investors@westernmidstream.com
866.512.3523
Rhianna Disch
Manager, Investor Relations
Investors@westernmidstream.com
866.512.3523
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SOURCE Western Midstream Partners, LP
FAQ
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