Western Midstream Partners LP

(1)Average for period. Calculated as Adjusted gross margin for natural-gas assets, crude-oil and NGLs assets, or produced-water assets, divided by the respective total throughput (MMcf or MBbls) attributable to WES for natural-gas assets, crude-oil and NGLs assets, or produced-water assets.

Adjusted gross margin. Adjusted gross margin increased by $25.7 million compared to the three months ended December 31, 2023, primarily due to (i) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, increased throughput, and increased deficiency fees on certain contracts with increasing throughput minimums at the West Texas complex, (ii) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased throughput at the DBM water systems, (iii) increased throughput at the DJ Basin complex, (iv) commercial activities prior to the divestment of our interest in the first quarter of 2024 at Whitethorn LLC, and (v) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, at the DBM oil system. These increases were offset partially by decreases due to annual cost-of-service rate adjustments that increased revenue during the fourth quarter of 2023 at the Springfield and DJ Basin oil systems.

Adjusted gross margin increased by $149.9 million compared to the three months ended March 31, 2023, primarily due to (i) increased throughput, a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums at the West Texas complex, (ii) increased throughput at the Powder River Basin complex attributable to the acquisition of Meritage, (iii) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased throughput at the DBM water systems, and (iv) increased throughput at the DJ Basin complex. These increases were offset partially by (i) decreased processing fees at the Brasada complex resulting from a change in contract terms effective July 1, 2023, and (ii) a decrease in distributions from TEP.

Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.03 compared to the three months ended December 31, 2023, primarily due to increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums. This increase was offset partially by a decrease resulting from an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023 at the Springfield system.

Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.02 compared to the three months ended March 31, 2023, primarily due to (i) increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums, and (ii) increased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets. These increases were offset partially by decreased processing fees at the Brasada complex resulting from a change in contract terms effective July 1, 2023.

Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.49 compared to the three months ended December 31, 2023, primarily due to the sale of our interests in Whitethorn LLC, Saddlehorn, Panola, and Mont Belvieu JV in the first quarter of 2024, all of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets. These increases were offset partially by decreases related to (i) an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023, partially offset by increased throughput, at the DJ Basin oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets, and (ii) an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023 at the Springfield system.

Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.27 compared to the three months ended March 31, 2023, primarily due to (i) the sale of our interests in Whitethorn LLC, Saddlehorn, Panola, and Mont Belvieu JV in the first quarter of 2024, all of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets, and (ii) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, at the DBM oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets. These increases were offset partially by (i) decreased deficiency fees on demand volumes at the DJ Basin oil system and (ii) a decrease in distributions from TEP.

Per-Bbl Adjusted gross margin for produced-water assets increased by $0.09 and $0.14 compared to the three months ended December 31, 2023, and March 31, 2023, respectively, primarily due to increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024.

Adjusted EBITDA. Adjusted EBITDA increased by $37.7 million compared to the three months ended December 31, 2023, primarily due to (i) a $29.5 million increase in total revenues and other, (ii) a $5.5 million decrease in operation and maintenance expenses, (iii) a $4.7 million decrease in general and administrative expenses excluding non-cash equity-based compensation expense, and (iv) a $2.6 million decrease in property taxes. These amounts were offset partially by a $5.2 million increase in cost of product (net of lower of cost or market inventory adjustments).

Adjusted EBITDA increased by $109.7 million compared to the three months ended March 31, 2023, primarily due to (i) a $153.7 million increase in total revenues and other and (ii) a $5.3 million decrease in cost of product (net of lower of cost or market inventory adjustments). These amounts were offset partially by (i) a $20.7 million increase in operation and maintenance expenses, (ii) a $14.5 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, (iii) a $7.1 million increase in property and other taxes, and (iv) a $3.6 million decrease in distributions from equity investments.

Free cash flow. Free cash flow decreased by $57.1 million compared to the three months ended December 31, 2023, primarily due to a $73.6 million decrease in net cash provided by operating activities, partially offset by (i) an $11.6 million increase in distributions from equity investments in excess of cumulative earnings and (ii) a $4.9 million decrease in capital expenditures.

Free cash flow increased by $83.4 million compared to the three months ended March 31, 2023, primarily due to (i) a $97.3 million increase in net cash provided by operating activities and (ii) a $6.7 million increase in distributions from equity investments in excess of cumulative earnings. These amounts were offset partially by a $20.7 million increase in capital expenditures.

See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.