💰 Market Cap: $14.6B | 🏢 1.3K Employees | 🌍 US Midstream Energy

👨‍💼 CEO Oscar Brown | 🎯 Three-Stream Delaware Basin Dominance | 🇺🇸 The Woodlands, TX

$37.96

📈 +$0.62 (+1.66%) Today

+13.0% YTD | 9.6% Dividend Yield

🚀 Needs:

Aris integration captures full $40M+ synergies by Q2 2026 • Pathfinder pipeline and North Loving II plants deliver ahead of Q1-Q2 2027 schedule • Delaware Basin activity remains robust with 2026 throughput growth exceeding mid-single digits across all three streams • Additional bolt-on M&A opportunities in New Mexico expand footprint • Natural gas prices stabilize above $3.50/Mcf supporting producer activity

⚖️ Needs:

Management delivers on 2025 high-end guidance with Adjusted EBITDA at $2.55B and FCF above $1.475B • Aris integration captures $30-35M of targeted $40M cost synergies through 2026 • Pathfinder and North Loving II projects complete on time in Q1-Q2 2027 with mid-teens unlevered returns • Net leverage maintained at 3.0x through 2026 despite $1.1B capex program • Quarterly distribution maintained at $0.91/unit with modest growth trailing earnings

⚠️ Risk:

Aris integration faces unexpected challenges capturing only $15-20M of $40M targeted synergies • Natural gas prices decline below $2.50/Mcf reducing Delaware Basin producer activity and throughput volumes • Regulatory pressures in Texas/New Mexico on produced water disposal increase compliance costs and delay permits • Major growth projects (Pathfinder/North Loving II) face construction delays or cost overruns pushing 2027 timelines • Elevated $1.1B+ 2026 capex strains balance sheet pushing leverage above 3.5x and threatening distribution sustainability

💰

What Happened

Q3 Revenue: $952.5M (slight miss vs $962M est, flat adj gross margin QoQ)

Record EBITDA: $634M, second consecutive record driven by 5% O&M reduction ($12M savings) despite higher throughput

Historic Operability: Highest asset operability in partnership history while achieving cost reductions - "incredible feat"

Gas Throughput Record: Highest total natural gas throughput ever, Delaware Basin set another record despite fewer wells than expected

Aris Integration: Teams "hit the ground sprinting" on integration, extremely confident in capturing $40M+ synergies starting Q1-Q2 2026

📈

Why It Matters

Cost Management Success: Zero-based process review launched March 2025 delivering sustainable O&M improvements through rental rationalization, maintenance optimization, contract renegotiation

Water Regulatory Tailwinds: Increased federal/state engagement on produced water challenges positions WES with critical infrastructure as regulations tighten on disposal/recycling

Enhanced Pathfinder Economics: New pore space agreement optimized pipeline route, reduced capex, improved returns beyond original $400-450M budget

Synergies Beyond $40M: Cost target is overhead only - operational synergies from best practices sharing will deliver additional savings Q1-Q2 2026

New Mexico Leverage: Aris footprint creates platform for organic three-stream expansion - "solving water piece is threshold issue for development"

🎯

What's Next

2025 High End: Tracking toward $2.55B Adj EBITDA (includes $45-50M Aris contribution), above $1.475B FCF guidance

Q4 Water Guidance: 2.6-2.7M Bbls/d produced water throughput (~40% YoY growth) with $0.85-0.90 per barrel margin including 2.5 months Aris

2026 Throughput Growth: YoY growth across all three product lines despite PRB/DJ commodity headwinds, Oxy Bronco Cap development starts H1 2026

Delaware Basin Momentum: Low double-digit gas growth, low-mid single-digit oil/NGL growth expected for 2026, remains primary growth engine

Cost Evolution: Q3 O&M levels sustainable with "more to come" in 2026 as initiatives expand, Q4 up 20-25% with Aris but synergies accelerating

💡

Bottom Line for Retail Investors

Western Midstream accomplished the rare feat of simultaneously improving cost structure while executing major growth - CEO called this "two things that are very hard to do at the same time." Q3's record asset operability with 5% O&M reduction proves operational excellence, while the Aris integration is "sprinting not running" toward exceeding $40M synergy targets. Management's confidence stems from March 2025 zero-based cost initiative delivering sustainable improvements through 2026+, enhanced Pathfinder economics from new pore space deals, and regulatory tailwinds as produced water challenges intensify. The 9.5% yield appears secure with improving distribution coverage, 3.0x leverage discipline, and 2026 throughput growth visibility across all three streams even before operational synergies materialize in Q1-Q2 2026.

💧

Delaware Basin Water Dominance

Regulatory Validation: Federal/state regulators confirm water is "threshold issue for development" - seismicity, well communication, disposal challenges favor large operators

Contract Quality Trend: Aris long-term dedications + WES Pathfinder MVCs resemble gas business model with stronger pricing as regulations increase

Cross-Border Advantage: Texas/New Mexico water transport capability unique competitive position - smaller non-investment grade players pushed out by compliance requirements

New Mexico Expansion: Massive Aris footprint (625K+ acres) with Chevron, ConocoPhillips, Oxy, Mewbourne creates organic platform to add gas/oil infrastructure

📊

Operational Excellence & Synergies

Record EBITDA + Operability: Q3 $634M EBITDA with highest operability ever while cutting O&M 5% - teams rationalized maintenance, rentals, contracts, bottlenecked facilities

Exceeding $40M Target: Cost synergies are overhead only - operational synergies from best practices sharing across both teams will add to savings Q1-Q2 2026

Sustainable Platform: March 2025 zero-based initiative reviewed all processes - Q3 O&M sustainable with "more to come" throughout 2026 and beyond

Aris Integration Speed: Teams "hit ground sprinting" with combined commercial teams accelerating water growth, kept full Aris staff to expand capabilities

🚀

High-Return Growth Projects

Pathfinder Enhanced: New pore space deal added capacity, rerouted pipeline saving capex, improved returns on existing $400M+ project with year until Q1 2027 completion

Combined System Power: Pathfinder + Aris New Mexico assets create "giant gas header system with beautiful pipeline" accelerating water contracting discussions

North Loving II Drivers: Sanctioned based on continued northern Delaware acreage growth, strong underlying contracts supporting 300 MMcf/d Q2 2027 in-service

Revenue Synergies Coming: Three-stream organic opportunities in New Mexico "shouldn't take incredibly long" with water leverage opening gas/oil doors in 2026

💵

Income & Balance Sheet Strength

Distribution Philosophy: $0.91/unit maintained, board discretion on growth - may see step-ups with major projects or M&A, balancing high yield with coverage improvement

2025 FCF Beat: Above high-end $1.475B guidance including incremental Aris contribution, Q3 FCF after distributions $42M demonstrates sustainability

3.0x Leverage Lock: "At or near 3x throughout 2026" despite $1.1B capex and Aris integration provides flexibility for opportunistic M&A or buybacks

2026 Growth Visibility: Delaware low double-digit gas, low-mid single oil/NGL growth plus ~40% water growth (2.6-2.7M Bbls/d Q4) de-risks forward distributions

⚠️

Integration & Execution Risks

Aris Integration Complexity: $2B acquisition with aggressive $40M synergy target creates execution risk if cultural fit or systems integration faces challenges

Synergy Capture Timing: Cost savings may materialize slower than expected extending payback period and pressuring near-term margins

Project Delays/Overruns: $1.1B+ 2026 capex concentrated in Pathfinder and North Loving II vulnerable to construction inflation or permitting delays

Management Bandwidth: Simultaneous large acquisition integration and major project execution stretches organizational capacity

📉

Commodity & Volume Exposure

PRB/DJ Weakness: Commodity price weakness driving rig drops and deferrals - PRB expecting "slightly lower YoY throughput" in 2026, DJ modestly declining despite Oxy Bronco Cap

Delaware Wells Timing: Q3 saw "fewer wells came to market than initially anticipated" showing producer activity unpredictability impacts near-term volumes

Downstream Curtailments: Q4 intermittent volume curtailments from downstream maintenance impacting gas growth rate though "minimal financial impact"

NGL Price Sensitivity: Q3 per MCF margin down $0.05 on lower excess NGL volumes and pricing in Delaware - commodity exposure persists in fee structure

🏛️

Regulatory & Environmental Pressures

Sour Gas Complexity: New Mexico expansion faces AGI (acid gas injection) permit challenges - "lot of sour gas" requires time-intensive permitting and specialized infrastructure

Regulatory Uncertainty: While increased regulation favors WES, compliance costs rising - federal/state engagement intensifying on seismicity, well communication, disposal standards

Integration Pause Risk: Management admitted Aris close "took a little bit of pause" on Pathfinder contracting as teams couldn't coordinate pre-close - regulatory reviews can slow M&A

Water System Liability: Massive produced water volumes (2.6-2.7M Bbls/d) with disposal/recycling operations carry long-tail environmental risks and potential remediation exposure

💸

Capital Intensity & Distribution Risk

Q4 Cost Jump: O&M and G&A expected up 20-25% in Q4 with 2.5 months of Aris despite "limited synergy capture to impact 2025" - integration costs front-loaded

Distribution Growth Lag: Management explicit that "distribution growth to trail earnings growth" prioritizing coverage - limits total return even as EBITDA grows 10%+

Capex Concentration Risk: $350-400M Pathfinder spend in 2026 represents ~35% of total $1.1B budget - any delay or overrun materially impacts FCF and leverage

Limited Coverage Buffer: Q3 FCF after distributions just $42M - elevated 2026 capex with potential synergy delays could squeeze distribution sustainability if volumes disappoint