Western Midstream Partners LP

Our primary cash uses include equity and debt service, operating expenses, and capital expenditures. Our sources of liquidity, as of December 31, 2023, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, our commercial paper program, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to satisfy our short-term working capital requirements and long-term capital-expenditure and debt-service requirements.

The amount of future distributions to unitholders will be determined by the Board on a quarterly basis. Under our partnership agreement, we distribute all of our available cash (beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end. Our cash flow and resulting ability to make cash distributions are dependent on our ability to generate cash flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter. The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. The Board declared a cash distribution to unitholders for the fourth quarter of 2023 of $0.575 per unit, or $223.4 million in the aggregate. The cash distribution was paid on February 13, 2024, to our unitholders of record at the close of business on February 1, 2024.

To facilitate the distribution of available cash, during 2022 we adopted a financial policy that provided for an additional distribution (“Enhanced Distribution”) to be paid in conjunction with the regular first-quarter distribution of the following year (beginning in 2023), in a target amount equal to Free cash flow generated in the prior year after subtracting Free cash flow used for the prior year’s debt repayments, regular-quarter distributions, and unit repurchases. This Enhanced Distribution is subject to Board discretion, the establishment of cash reserves for the proper conduct of our business and is also contingent on the attainment of prior year-end net leverage thresholds (the ratio of our total principal debt outstanding less total cash on hand as of the end of such period, as compared to our trailing-twelve-months Adjusted EBITDA), after taking the Enhanced Distribution for such prior year into effect. Free cash flow and Adjusted EBITDA are defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 7. In April 2023, the Board approved an Enhanced Distribution of $0.356 per unit, or $140.1 million, related to our 2022 performance, which was paid in conjunction with our regular first-quarter 2023 distribution on May 15, 2023.

In 2022, we announced a common-unit buyback program of up to $1.25 billion through December 31, 2024. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of our common units, and other factors, including organic growth and acquisition opportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. During the year ended December 31, 2023, we repurchased 5,387,322 common units, which includes 5,100,000 common units repurchased from Occidental, for an aggregate purchase price of $134.6 million. The units were canceled immediately upon receipt. As of December 31, 2023, we had an authorized amount of $627.8 million remaining under the program.

For the year ended December 31, 2024, capital expenditures are expected to range between $700.0 million to $850.0 million (accrual-based, includes equity investments, excludes capitalized interest, and excludes capital expenditures associated with the 25% third-party interest in Chipeta). Total-year capital expenditures guidance includes capital expenditures attributable to (i) a portion of Mentone Train III, which is expected to be complete and in-service at the end of the first quarter of 2024, (ii) a portion of the North Loving plant, a new 250 MMcf/d cryogenic processing plant in the North Loving area of our West Texas complex that was sanctioned in May 2023, and (iii) additional expansion capital needed to support new commercial activity.

Management continuously monitors our leverage position and other financial projections to manage the capital structure according to long-term objectives. We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or financing agreements through cash purchases, exchanges, open-market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors and the amounts involved may be material. Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control. Read Risk Factors under Part I, Item 1A of this Form 10-K.

Working capital. Working capital is an indication of liquidity and potential needs for short-term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and other capital activities. As of December 31, 2023, we had a $311.6 million working capital deficit, which we define as the amount by which current liabilities exceed current assets. Our working capital deficit was primarily due to the outstanding commercial paper borrowings being classified as short-term debt on the consolidated balance sheet. As of December 31, 2023, there was $1.4 billion in effective borrowing capacity under the RCF, after taking into account the $613.9 million of outstanding commercial paper borrowings, for which we maintain availability under the RCF as support for our commercial paper program. See Note 11—Selected Components of Working Capital and Note 13—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

Capital expenditures. Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. Capital expenditures include maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to reduce costs, increase revenues, or increase system throughput or capacity from current levels.

Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:

(1)For the years ended December 31, 2023 and 2022, included $13.6 million and $5.6 million, respectively, of capitalized interest.

Acquisitions for the year ended December 31, 2023, include the acquisition of Meritage. Acquisitions for the year ended December 31, 2022, include the acquisition of the remaining 50% interest in Ranch Westex. See Items Affecting the Comparability of Our Financial Results within this Item 7.

Capital expenditures increased by $247.9 million for the year ended December 31, 2023, primarily due to increases of (i) $130.4 million at the West Texas complex, primarily attributable to facility expansion, including ongoing construction of Mentone Train III and engineering and equipment milestone payments for the North Loving Plant, and pipeline projects, (ii) $55.0 million at the DBM water systems due to construction of additional water-disposal wells and facilities, pipeline build-out, and replacement projects, (iii) $39.0 million at the DBM oil system, primarily related to an increase in pipeline, oil treating, and oil pumping projects, (iv) $10.0 million related to the acquisition of Meritage, (v) $9.9 million at the DJ Basin oil system due to an increase in pipeline projects, and (vi) $8.3 million at the DJ Basin complex due to an increase in well connection and pipeline projects.

Historical cash flow. The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities:

Operating activities. Net cash provided by operating activities decreased for the year ended December 31, 2023, primarily due to (i) lower distributions from equity investments, (ii) higher interest expense, and (iii) lower cash operating income. These decreases were partially offset by the impact of changes in assets and liabilities. Refer to Operating Results within this Item 7 for a discussion of our results of operations as compared to the prior periods.

Investing activities. Net cash used in investing activities for the year ended December 31, 2023, primarily included the following:

•$877.7 million of cash paid, net of cash received, for the acquisition of Meritage;

•$735.1 million of capital expenditures, primarily related to expansion, construction, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;

•$32.3 million of increases to materials and supplies inventory; and

•$39.1 million of distributions received from equity investments in excess of cumulative earnings.

Net cash used in investing activities for the year ended December 31, 2022, primarily included the following:

•$487.2 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;

•$40.1 million of cash paid for the acquisition of the remaining 50% interest in Ranch Westex;

•$9.6 million of capital contributions primarily paid to Red Bluff Express;

•$9.5 million of increases to materials and supplies inventory;

•$263.0 million in proceeds from the sale of our 15.00% interest in Cactus II; and

•$63.9 million of distributions received from equity investments in excess of cumulative earnings.

Financing activities. Net cash used in financing activities for the year ended December 31, 2023, primarily included the following:

•$1,495.0 million of repayments of outstanding borrowings under the RCF;

•$1,008.9 million of distributions paid to WES unitholders and noncontrolling interest owners;

•$259.8 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases;

•$213.1 million to redeem the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value;

•$134.6 million of unit repurchases;

•$1,120.0 million of borrowings under the RCF, which were used for general partnership purposes;

•$740.6 million of net proceeds from the 6.150% Senior Notes due 2033 issued in April 2023, which were used to repay borrowings under the RCF and for general partnership purposes;

•$609.9 million of net borrowings under the commercial paper program, which were used for general partnership purposes; and

•$592.8 million of net proceeds from the 6.350% Senior Notes due 2029 issued in September 2023, which were used to fund a portion of the aggregate purchase price for the Meritage acquisition, to pay related costs and expenses, and for general partnership purposes.

Net cash used in financing activities for the year ended December 31, 2022, primarily included the following:

•$1,015.0 million of repayments of outstanding borrowings under the RCF;

•$735.8 million of distributions paid to WES unitholders;

•$502.2 million to redeem the total principal amount outstanding of WES Operating’s 4.000% Senior Notes due 2022;

•$487.6 million of unit repurchases;

•$24.9 million of distributions paid to the noncontrolling interest owner of WES Operating;

•$10.7 million of distributions paid to the noncontrolling interest owner of Chipeta;

•$1,390.0 million of borrowings under the RCF, which were used for general partnership purposes and to redeem portions of certain of WES Operating’s senior notes; and

•$2.2 million of increases in outstanding checks.

Debt and credit facilities. As of December 31, 2023, the carrying value of outstanding debt was $7.9 billion and we have estimated future interest and RCF fee payments totaling $346.3 million in 2024. In addition, we have no senior note borrowings due within the next year and, as of December 31, 2023, have $1.4 billion in effective borrowing capacity under WES Operating’s $2.0 billion RCF, after taking into account the $613.9 million of outstanding commercial paper borrowings, for which we maintain availability under the RCF as support for WES Operating’s commercial paper program.

During the year ended December 31, 2023, WES Operating (i) completed the public offering of $600.0 million in aggregate principal amount of 6.350% Senior Notes due 2029, (ii) completed the public offering of $750.0 million in aggregate principal amount of 6.150% Senior Notes due 2033, (iii) entered into an amendment to our RCF to, among other things, extend the maturity date to April 2028 and provide for a maximum borrowing capacity up to $2.0 billion, expandable to a maximum of $2.5 billion, through the maturity date, (iv) entered into an unsecured commercial paper program under which it may issue (and have outstanding at any one time) an aggregate principal amount up to $2.0 billion (WES Operating intends to maintain a minimum aggregate available borrowing capacity under the RCF equal to the aggregate amount of outstanding commercial paper borrowings), (v) purchased and retired $276.7 million of certain of its senior notes via open-market repurchases, and (vi) redeemed the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value with cash on hand.

In May 2023, Fitch Ratings upgraded WES Operating’s long-term debt from “BB+” to “BBB-.” WES Operating’s senior unsecured debt ratings are now investment grade at Standard and Poor’s, Moody’s Investors Services, and Fitch Ratings. As a result of the upgrade, annualized borrowing costs will decrease by $6.9 million on WES Operating’s senior notes that are subject to effective interest-rate adjustments from a change in credit rating.

For additional information on our senior notes, RCF, and commercial paper program, see Note 13—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

Finance lease liabilities. WES has finance leases with third parties for equipment, vehicles, and an NGL pipeline in Wyoming. As of December 31, 2023, we have future finance-lease payments of $7.7 million for 2024 and a total of $35.0 million in years thereafter.

Asset retirement obligations. When assets are acquired or constructed, the initial estimated asset retirement obligation is recognized in an amount equal to the net present value of the settlement obligation, with an associated increase in property, plant, and equipment. Revisions in estimated asset retirement obligations may result from changes in estimated asset retirement costs, inflation rates, discount rates, and the estimated timing of settlement. As of December 31, 2023, we expect to incur asset retirement costs of $7.6 million in 2024 and a total of $359.2 million in years thereafter. For additional information, see Note 12—Asset Retirement Obligations in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

Operating leases. We have entered into operating leases for corporate offices, shared field offices, easements, and equipment supporting our operations, with both Occidental and third parties as lessors. As of December 31, 2023, we have future operating-lease payments of $11.6 million in 2024 and a total of $67.7 million in years thereafter. See Note 14—Leases in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

Offload commitments. We have entered into offload agreements with third parties providing firm-processing capacity through 2025. As of December 31, 2023, we have future minimum payments under offload agreements totaling $7.7 million for 2024 and a total of $3.4 million in years thereafter.

Pipeline commitments. We have entered into transportation contracts with volume commitments on multiple pipelines through 2033. As of December 31, 2023, we have estimated future minimum-volume-commitment fees totaling $11.3 million for 2024, and a total of $67.5 million in years thereafter.

Credit risk. We bear credit risk through exposure to non-payment or non-performance by our counterparties, including Occidental, financial institutions, customers, and other parties. Generally, non-payment or non-performance results from a customer’s inability to satisfy payables to us for services rendered, minimum-volume-commitment deficiency payments owed, or volumes owed pursuant to gas- or NGLs-imbalance agreements. We examine and monitor the creditworthiness of customers and may establish credit limits for customers. We are subject to the risk of non-payment or late payment by producers for gathering, processing, transportation, and disposal fees. Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our contractual rights to request adequate assurance of performance.

We expect our exposure to the concentrated risk of non-payment or non-performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements.