Western Midstream Partners LP

Our primary cash uses include equity and debt service, operating expenses, and capital expenditures. Our sources of liquidity, as of March 31, 2024, included cash and cash equivalents, cash flows generated from operations, effective 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 first quarter of 2024 of $0.875 per unit, or $340.9 million in the aggregate. The cash distribution is payable on May 15, 2024, to our unitholders of record at the close of business on May 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 2.

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 three months ended March 31, 2024, there were no common units repurchased. During the three months ended March 31, 2023, we repurchased 285,688 common units for an aggregate purchase price of $7.1 million. The units were canceled immediately upon receipt. As of March 31, 2024, we had an authorized amount of $627.8 million remaining under the program.

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 II, Item 1A of this Form 10-Q.

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 March 31, 2024, we had a $358.2 million working capital surplus, which we define as the amount by which current assets exceed current liabilities. As of March 31, 2024, there was $1.9 billion in effective borrowing capacity under the RCF, after taking into account the $100.0 million of outstanding commercial paper borrowings, for which we maintain availability under the RCF as support for our commercial paper program. See Note 9—Selected Components of Working Capital and Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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 three months ended March 31, 2024 and 2023, included $5.3 million and $2.5 million, respectively, of capitalized interest.

Capital expenditures increased by $20.7 million for the three months ended March 31, 2024, primarily due to increases of (i) $12.4 million at the West Texas complex, primarily attributable to engineering and equipment milestone payments for the North Loving Plant, (ii) $10.9 million related to the acquisition of Meritage, (iii) $6.2 million at the DJ Basin complex due to the purchase of a field office in the first quarter of 2024 and an increase in well connection and pipeline projects, and (iv) $5.4 million in corporate-level capital expenditures. These increases were offset partially by a decrease of $13.3 million at the DBM water systems due to reduced construction of water-disposal wells and facilities and well-connect 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 increased for the three months ended March 31, 2024, primarily due to higher cash operating income, partially offset by lower distributions from equity investments and higher interest expense. Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior periods.

Investing activities. Net cash provided by investing activities for the three months ended March 31, 2024, primarily included the following:

•$582.7 million of proceeds related to the sale of several equity investments to third parties;

•$19.0 million of distributions received from equity investments in excess of cumulative earnings;

•$193.8 million of capital expenditures, primarily related to expansion, construction, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, Powder River Basin complex, and DBM oil system; and

•$10.7 million of increases to materials and supplies inventory.

Net cash used in investing activities for the three months ended March 31, 2023, primarily included the following:

•$173.1 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DBM oil system, and DJ Basin complex;

•$18.3 million of increases to materials and supplies inventory; and

•$12.4 million of distributions received from equity investments in excess of cumulative earnings.

Financing activities. Net cash used in financing activities for the three months ended March 31, 2024, primarily included the following:

•$510.4 million of net repayments under the commercial paper program;

•$229.1 million of distributions paid to WES unitholders and noncontrolling interest owners; and

•$14.5 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases.

Net cash used in financing activities for the three months ended March 31, 2023, primarily included the following:

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

•$203.1 million of distributions paid to WES unitholders and noncontrolling interest owners;

•$100.0 million of repayments of outstanding borrowings under the RCF;

•$7.1 million of unit repurchases; and

•$220.0 million of borrowings under the RCF, which were used for general partnership purposes.

Debt and credit facilities. As of March 31, 2024, the carrying value of outstanding debt was $7.4 billion and we have $1.9 billion in effective borrowing capacity under WES Operating’s $2.0 billion RCF, after taking into account the $100.0 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 three months ended March 31, 2024, WES Operating purchased and retired $15.1 million of certain of its senior notes via open-market repurchases with cash from operations and a gain of $0.5 million was recognized for the early retirement of portions of these notes. As of March 31, 2024, the 3.100% Senior Notes due 2025 were classified as long-term debt on the consolidated balance sheet as WES Operating has ability and intent to refinance these obligations using long-term debt. Subsequent to March 31, 2024, WES Operating purchased and retired $134.9 million of certain of its senior notes via open-market repurchases.

For additional information on our senior notes, RCF, and commercial paper program, see Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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 I, Item 1 of this Form 10-Q.

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.