Western Midstream Partners, LP Stock

Good morning. My name is Morgan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Western Midstream's Third Quarter 2026 Conference Call. Today's call, the accompanying slide deck and last night's press release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward-looking statements we discuss today.

Relevant reference materials are posted on our website. With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer. I'll now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. Before focusing on our third quarter results, I want to take a minute to review some of our greatest achievements over the past several quarters. First, in October of last year, we closed the $2 billion acquisition of Aris Water Solutions, which created one of the largest produced water handlers in the Delaware Basin, more than doubled our produced water throughput, increased our recycling capabilities and added beneficial reuse to our suite of service offerings within our Produced Water business.

When you analyze our performance over the past several quarters, it is clear that the Aris acquisition has been a home run by completely transforming our Produced Water business and creating tremendous value for WES unitholders. We also closed the acquisition of Brazos Delaware in June, adding several new producing customers, numerous gathering facilities and 460 million cubic feet per day of additional processing capacity in the Delaware Basin.

Once these assets are tied into our West Texas complex by mid-December, we will be able to utilize excess processing capacity at the Comanche processing plant, reduce third-party offloads and create incremental value for WES unitholders. The asset is performing very well with customers increasing activity above our underwriting case, which was put together early this year.

Since early 2025, we have been keenly focused on reducing both operational and administrative costs to improve our competitiveness in the midstream marketplace. We have now achieved just over $125 million of permanent O&M and G&A cost savings from the legacy business when excluding Aris, Brazos and utility costs, which are mostly reimbursable. These cost reductions, when combined with our efforts to also improve capital efficiency have made WES a more nimble midstream enterprise and have increased our partnership's ability to better compete for new business.

We have also achieved tremendous success on the commercial front. On our second quarter earnings call, we announced 2 new gathering and processing agreements with some of the most active producers in the Powder River Basin, adding approximately 270,000 dedicated acres to our asset base, backed by substantial minimum volume commitments. These agreements are expected to drive year-over-year throughput growth in the Powder River Basin in 2027 and are just a sample of the acceleration of our commercial team's success across all our basins.

When you take these accomplishments and pair them with the strong commodity price backdrop we have experienced year-to-date, we were able to increase our 2026 financial guidance ranges by 10%, 10% and 20% at the midpoint for adjusted EBITDA, distributable cash flow and free cash flow, respectively. The bottom line is that our teams from the field to the front office have executed extremely well, guided by our mission and core values and following our refreshed growth-oriented strategy, which we rolled out only 18 short months ago.

Over this time, we have demonstrated that our "multiple ways to win" strategy delivers industry-leading total returns. We have consummated strategic accretive M&A, achieved organic throughput growth, especially for natural gas and produced water. We expect these trends to continue as both gas-to-oil and water-to-oil ratios continue to increase and move in the midstream providers' favor. As we look to the future, the North Loving II natural gas processing train, the Pathfinder produced water pipeline and the Solitude Pipeline System all provide avenues for growth in 2027 and beyond.

We also recently placed orders for long lead time items for our next natural gas processing plant that we plan to sanction sometime in early 2027. Additionally, we have other catalysts for future growth from beneficial reuse as we make progress towards our first commercial plant and from longer-term opportunities such as behind-the-meter power generation and CO2 enhanced oil recovery opportunities for shale.

Finally, by pairing our approximate 8% annual cash yield with our long-term adjusted EBITDA growth target of mid- to low single-digits percentage growth, WES offers a potential 12% to 14% annual total equity return, which is a very compelling investment opportunity, especially when you compare those potential investment returns to the expected total returns of our midstream peers as well as the S&P 500.

Now turning to our third quarter results. Yesterday, we reported third quarter adjusted EBITDA of $708 million, a 12% increase compared to the prior year period, along with record produced water and natural gas throughput partnership-wide and in the Delaware Basin. Through the first 9 months of the year, our business has outperformed on nearly every front, and we now expect full year 2026 adjusted EBITDA to exceed the midpoint of our recently revised guidance range that we announced with second quarter earnings.

Third quarter throughput growth was led by our Delaware Basin natural gas business, where throughput increased 20% sequentially. Roughly 1/3 of that growth came from our legacy Delaware Basin assets and roughly 2/3 from a full quarter contribution from Brazos. As noted in yesterday's release, adjusted EBITDA declined modestly on a sequential quarter basis, primarily due to contract mix and pricing dynamics in West Texas, decreased throughput from the DJ Basin, lower excess natural gas liquids and skim oil volumes in conjunction with lower NGL and skim oil prices and seasonally higher operation and maintenance expense that is typical of the third quarter, all of which was partially offset by a full quarter of contribution from the Brazos assets.

With that said, none of these third quarter items change our view of the year. With a greater number of wells expected to come online in the fourth quarter relative to the third quarter, we expect strong fourth quarter results and a strong finish to what has been an outstanding year for WES. The Brazos acquisition is progressing as planned, and we expect the legacy Brazos system to be fully tied into the WES system by mid-December. Once connected, we will direct additional volumes to the Comanche natural gas processing plant, which has more than 100 million cubic feet per day of available capacity, reducing offloads and creating additional value for WES unitholders.

In August, we announced our participation in the Solitude Pipeline System, a joint venture operated by WhiteWater that will construct 2 48-inch natural gas pipelines from the Permian Basin to Katy, Texas. We hold a 7.5% equity interest in the joint venture and have secured firm transportation capacity on the system, which is expected to provide initial capacity of approximately 2.25 billion cubic feet per day in late 2029 and an additional 2.25 billion cubic feet per day by the end of 2030. Solitude will provide incremental residue takeaway, enhanced flow assurance and improve netbacks for many of our Delaware Basin customers while supporting continued Permian Basin natural gas growth and expanding Gulf Coast demand for LNG exports.

Looking ahead to the fourth quarter, we expect strong results. Customer activity levels in the Delaware and Powder River Basin should drive throughput growth as we exit the year. We expect this volume growth to deliver higher fourth quarter adjusted EBITDA, particularly if the current commodity price environment holds and to position WES for additional throughput growth across all 3 product lines in 2027.

Turning to guidance. In conjunction with our second quarter earnings release, we raised the midpoint of our full year 2026 adjusted EBITDA, distributable cash flow and free cash flow guidance ranges by 10%, 10% and 20%, respectively. We now expect to be above the midpoint of our full year 2026 adjusted EBITDA range of $2.75 billion to $2.95 billion, driven by a greater number of wells expected to come online in the fourth quarter and increased commodity pricing.

This outlook represents an increase of more than $250 million relative to the $2.6 billion midpoint of the original guidance range we announced in February or more than $150 million, excluding the Brazos acquisition. That is a meaningful step-up within a single year and it reflects the quality of our core operating basins, contracts and the execution of our teams.

On capital, we now expect to be slightly above the high end of our full year 2026 capital expenditure guidance range of $850 million to $1 billion, reflecting our investment in Solitude and accelerating producer activity, both of which are investments in future growth. Looking to 2027, we are still working through the budgeting process with our producing customers.

However, given the current elevated commodity price environment, increasing customer activity levels in the Delaware and Powder River Basins and a portfolio of sizable organic growth projects, including Solitude and the recent Powder River Basin acreage dedications, we now anticipate 2027 capital expenditure to be relatively in line with 2026.

With incremental customer activity, a full year of contribution from Brazos, the start-up of the Pathfinder pipeline, North Loving II coming online and our new gathering and processing agreements in the Powder River, we are positioned for throughput growth across all 3 product lines again next year. Relative to our expectations entering the year, it is clear that 2027 will be another growth year for WES. Kristen will provide additional detail on our 2027 outlook shortly.

With that, I will turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our third quarter operational performance. Danny?

Thank you, Oscar, and good morning, everyone. Third quarter natural gas throughput increased 8% sequentially to a partnership-wide record of 5.9 billion cubic feet per day, driven by growth from our legacy Delaware Basin assets and a full quarter of contribution from the Brazos acquisition. Together, these resulted in another quarter of record natural gas throughput in the Delaware Basin, up 20% sequentially. Additionally, our crude oil and NGLs throughput increased slightly and produced water throughput increased approximately 2% on a sequential quarter basis to another Delaware Basin record.

Third quarter per Mcf adjusted gross margin for natural gas assets decreased $0.10 compared to the prior quarter, primarily due to contract mix and product pricing dynamics at our West Texas complex, lower excess natural gas liquids volumes in conjunction with lower crude oil and NGLs pricing and lower throughput in the DJ Basin. We expect fourth quarter per Mcf adjusted gross margin to be flat relative to the third quarter due to continued contract mix changes, offset by higher commodity price assumptions. But we continue to expect our full year 2026 adjusted gross margin to average approximately $1.30 per Mcf.

As we look into 2027, we expect our per Mcf adjusted gross margin to be slightly lower and most likely average between $1.25 and $1.30 per Mcf due to shifting contract mix. Third quarter per barrel adjusted gross margin for crude oil and NGLs assets decreased $0.28 compared to the prior quarter, primarily driven by NGL pipeline imbalance activity that we expect to normalize in the fourth quarter. We expect fourth quarter per barrel adjusted gross margin to be relatively the same as first quarter 2026, and we now expect our full year 2026 adjusted gross margin to range between $3.05 and $3.10 per barrel.

As we look into 2027, we expect our per barrel adjusted gross margin to be slightly lower and most likely average between $3 and $3.05 per barrel, again, due to shifting contract mix. Third quarter per barrel adjusted gross margin for produced water assets decreased $0.07 compared to the prior quarter, primarily driven by lower skim oil recoveries and lower crude oil pricing. We expect fourth quarter per barrel adjusted gross margin to be in line relative to the third quarter, and we continue to expect our full year 2026 adjusted gross margin to average approximately $0.91 per barrel.

As we look into 2027, we expect our per barrel adjusted gross margin to be slightly higher and most likely average between $0.95 and $1 per barrel, driven by the start-up of the Pathfinder produced water pipeline. For the remainder of the year, we continue to expect portfolio-wide average year-over-year throughput to increase by mid-single digits for natural gas and by 85% to 90% for Produced Water, driven by the Aris acquisition and strong performance from our legacy water business. Additionally, we now expect crude oil and NGL throughput to increase by low single digits, reflecting outperformance through the first 9 months of the year.

In the Delaware Basin, we now expect average year-over-year throughput growth in the mid-teens for natural gas and in the mid-single digits for crude oil and NGLs, driven by the Brazos acquisition and increased customer activity. In the DJ Basin, despite the expected quarter-over-quarter declines in both natural gas and crude oil and NGLs, throughput has outperformed year-to-date, driven by strong well performance and higher onloads from other midstream companies.

This outperformance has improved our full year outlook for both products, and we now expect a low single-digit increase for natural gas and a mid-single-digit decline for crude oil and NGLs on an average year-over-year basis. In the Powder River Basin, we continue to expect natural gas throughput to decline by mid- to high single digits on an average year-over-year basis, with throughput increasing as we exit 2026 and again in 2027 as customer activity ramps associated with the new acreage dedications we announced last quarter.

Finally, we continue to expect mid-single-digit percentage throughput growth in 2026 from our other natural gas assets, notwithstanding the agreement we signed subsequent to quarter end to sell our remaining assets in Southwest Wyoming.

The transaction is expected to close by the end of the fourth quarter and will remove approximately 215 million cubic feet per day of annual natural gas throughput, most likely beginning in the first quarter of 2027.

With that, I will turn the call over to Kristen to discuss our financial performance.

Thank you, Danny, and good morning, everyone. During the third quarter, we generated net income attributable to limited partners of $325 million, adjusted EBITDA of $708 million and distributable cash flow of $512 million. Relative to the second quarter of 2026, adjusted gross margin decreased by $35 million, driven primarily by contract mix and commodity pricing dynamics at our West Texas complex, lower excess natural gas liquids volumes in conjunction with lower crude oil and NGL pricing and decreased throughput in the DJ Basin, all of which was partially offset by a full quarter contribution from the Brazos assets.

Operation and maintenance expense increased approximately 2% quarter-over-quarter, primarily driven by a full quarter of the Brazos acquisition and increased personnel costs associated with field level personnel, all of which was partially offset by lower land fees associated with our produced water business. Inclusive of the legacy Aris and Brazos assets, we continue to expect full year 2026 operation and maintenance expense to increase approximately 25% year-over-year, which is still a meaningful reduction on a combined company basis as we execute on synergy capture and operational cost reduction efforts.

Pro forma for the Brazos acquisition, we still estimate that approximately 60% of our portfolio-wide utility costs are reimbursed by our customers. On a reported basis, general and administrative expense increased 2% sequentially, primarily due to higher incentive compensation expense, reflecting year-to-date adjusted EBITDA outperformance partially offset by lower Brazos transaction costs relative to the second quarter.

Excluding acquisition-related costs and equity-based compensation expense, we now expect 2026 cash G&A expense to increase at a low to mid-teens percentage rate compared to 2025. This outlook fully incorporates higher year-to-date incentive compensation expense, a full year of the retained function from Aris and the integration of the Brazos assets, net of cost synergies. As Danny mentioned, subsequent to quarter end, we signed an agreement to sell our remaining assets in Southwest Wyoming for approximately $75 million with closing expected by the end of the fourth quarter, subject to customary regulatory approvals.

Upon close, we expect to recognize a noncash gain in excess of $100 million from the sale. However, the divestiture will have a minimal impact on adjusted EBITDA post close as these were high-cost noncore assets that did not compete for capital within our portfolio. Separately, in the fourth quarter, we acquired a small privately held Delaware Basin produced water gathering and disposal company for approximately $98 million. This system was already interconnected with ours at 2 locations and will create a fully continuous network in Eddy County while providing additional disposal capacity to support growing customer demand.

Turning to cash flow. Third quarter cash flow from operating activities totaled $568 million, an increase of $33 million over the second quarter of 2026. Free cash flow totaled $244 million and free cash flow after the second quarter 2026 distribution paid on August 14 was a use of cash of approximately $149 million.

Turning to the balance sheet. We ended the quarter with approximately $1.8 billion of total liquidity and a trailing 12-month net leverage ratio pro forma for a full year Brazos contribution of approximately 3.2x. On October 19, we declared a quarterly distribution of $0.93 per unit, unchanged from the prior quarter, payable on November 13 to unitholders of record as of November 2.

Turning to guidance. And as Oscar mentioned, we now expect to exceed the midpoint of our full year 2026 adjusted EBITDA guidance range of $2.75 billion to $2.95 billion, a range we already raised in conjunction with our second quarter earnings release. This outlook reflects the contribution from the Brazos acquisition, the strong commodity price environment, year-to-date outperformance in the DJ Basin and increased customer activity levels throughout the second half of the year in the Delaware and PRB.

Following a softer third quarter, commodity prices have recently strengthened and our revised outlook assumes an average oil price of approximately $85 per barrel for the second half of the year. On capital, we now expect to be slightly above the high end of our 2026 capital expenditure guidance range of $850 million to $1 billion, primarily driven by increased customer activity and associated expansion opportunities in the Delaware and Powder River Basins and together with our investment in the Solitude Pipeline System.

More than half of our 2026 capital program remains directed toward the construction of the Pathfinder Produced Water Pipeline and the North Loving II natural gas processing train, which we now expect to commence startup late in the fourth quarter of 2026 and late in the first quarter of 2027, respectively. As Oscar mentioned, we currently expect 2027 capital expenditures to be in line with 2026, with approximately 80% directed towards the Delaware Basin, our largest growth driver, including our investment in Solitude and completion of North Loving II.

The vast majority of the remaining capital will be directed towards the Powder River Basin to support the 2 new gathering and processing agreements with significant acreage dedications and minimum volume commitments that we announced last quarter. Finally, our guidance ranges for distributable cash flow of $2.05 billion to $2.25 billion and free cash flow of $1.1 billion to $1.3 billion, both remain unchanged. With the third quarter distribution, we will have achieved our distribution guidance of at least $3.70 per unit paid in calendar year 2026. Our annualized run rate of $3.72 reflects the increased distribution rate of $0.93 per unit that commenced with the first quarter 2026 distribution.

With that, I will now turn the call over to Oscar for closing comments.

Thanks, Kristen. Before we open the call up for questions, I'll leave you with a few closing thoughts. Continued producer investment in the country's most active basins has us on track for just over 15% adjusted EBITDA growth in 2026 with Brazos, Pathfinder, North Loving II and recent commercial successes supporting further growth in 2027.

Natural gas and produced water now drive our profitability and position us for rising gas-to-oil and water-to-oil ratios and emerging power and data center demand, while our investment-grade balance sheet funds growth, capital returns and per unit accretive acquisitions like Aris, Brazos and Meritage. Together, that delivers one of the most compelling total return profiles in midstream, a 12% to 14% potential annual equity return derived from a 7% to 9% cash yield and a 4% to 5% long-term growth rate with opportunities for upside where we have taken proactive steps to capture the benefits of environments like the current one.

I also want to thank our entire Western Midstream workforce for their continued hard work, engagement and dedication to our partnership. We lead with our core values of partnership, customer focus, resourcefulness and performance to deliver on our mission of improving lives through safe, sustainable and efficient energy delivery. With that, we'll open the call up for questions.

[Operator Instructions] Your first question comes from Keith Stanley with Wolfe Research.

I wanted to start on Solitude. Can you talk a little more to your strategic rationale for investing in gas pipelines? And then any color you can give on how contracted the pipeline is on the initial 4.5 Bcf a day?

Yes. Thanks, Keith. It's Oscar. Our strategic rationale for Solitude like everything we do is flow assurance and then getting really the best opportunity for pricing for our customers. So this just gives us another option. We had customers with capacity who didn't have exposure to the Gulf Coast. And we can certainly stand in and manage a portfolio of customers for a long-term commitment on a pipeline.

The ownership piece is important because if you can combine the commitment and that customer service with ownership, you just get a really great return on the project. WhiteWater is the operator. I don't believe they've released any information on the level of commitments. So I really can't comment there.

Okay. Second one, you referenced in the remarks some contract mix changes in gas and oil in 2027 and said margins would be down a little bit year-over-year. Can you talk a little more to what's driving that overall in those businesses?

Yes. I think that relates to different customer activity. Obviously, we have a range of portfolio of contracts at different pricing and different terms. And so depending on the activity of different customers, that mix changes. So that's a chunk of it. I don't know, Kristen, anything else?

No, I think that's totally fair. We now move 5.5 Bcf a day of gas, and so that's going into that equation on gross margin per unit on the gas side. I think on the oil side, the commentary is more around fourth quarter will be closer to what you saw in Q1. Q2 was a little higher from a gross margin per barrel standpoint on oil because of some imbalances and then Q3 was a little bit lower. So there really was just noise between Q2 and Q3 from a gross margin per unit. But as mentioning like Q4 and then going into 2027, closer to what you saw in Q1 of 2026.

Your next question comes from Vrathan Reddy with JPMorgan.

I wanted to pick up on the commentary around Southwest Wyoming asset sale and then the Delaware acquisition. As you think about the portfolio today, how do you view both sides of that, the opportunities for additional portfolio pruning or M&A, whether that would be small scale or large scale?

Yes. I mean the coming in and going out of both these transactions was under $100 million each. So that's pretty low, obviously. And we, I think, got a great multiple on the sell side and a different multiple on the buy side. So it's all good. So accretive, but very small. But really, that's just normal sort of portfolio review on the sell side there. That asset was very small, a very small number of folks sort of bit stranded relative to our system and just we didn't really have a way to grow it very well. And so it will do great. The people will do great there in somebody else's hands.

And then similar on the buy side, again, very small, but a nice puzzle piece addition to our water business. Again, it was already connected. So it was a pretty straightforward sort of transaction. So put that in the category of just expanding the system and really simple. It could have been a commercial deal for that matter.

So as it relates to the broader portfolio, I wouldn't read too much into it. I think all of our major assets contribute in different ways with the Permian being our highest growth; the Powder, also long-term growth play; the DJ, very high cash margins and a great cash producer. So everything contributes well, and we're pretty happy where we are. So I wouldn't overdo it. It's just some nice cleanup and opportunity that we took advantage of.

That's clear. And then the remarks kind of highlighted an acceleration in some of the producer growth. Curious if the views around the pace of processing additions has changed from maybe points in the past and how you frame that today?

Yes. No, I think our customer mix, of course, has been changing with Aris and Brazos. So we've added a lot of kind of midsized and smaller and private producers to the mix, and they've tended to be in this environment a little more aggressive in ramping up and leaning a bit forward a bit more relative to some of the very large public or integrated producers.

So I think that's some of the dynamic we're seeing. Right now, I think people -- sort of the general press has been there's restraint. I think that does apply to the very large public companies where some of the smaller ones that are more specifically Permian focused, again, I think we're just seeing a real acceleration of activity, particularly in our Brazos footprint, we've seen -- that was one where I don't think we billed that as a high-growth asset. It was just sort of a very nice, good asset with sort of modest growth, but it looks like in this environment, it's going to be a pretty strong grower. So that's a pleasant surprise relative to our underwriting case and sort of what we were referring to.

Your next question comes from Spiro Dounis with Citi.

I want to start with Pathfinder. Great to see that coming online soon. I was curious if you could provide more color on how you see those volumes ramping once it does come online. And then when it comes to achieving that higher sort of targeted return on that asset, how are you thinking about the pathway to layer in more volumes there?

Yes. Thanks for that, Spiro. We're really excited about this asset coming online. I mean I don't think in terms of our sort of shift to increasing and frankly, generating an integrated water business over the last couple of years. I don't think we could have been more pleased and sort of the turn of events, both in public policy, sort of the environment and all the opportunities have really played to the water handlers sort of benefit.

So we are really well positioned with sort of the best and largest footprint in the Delaware Basin around that. We touched the water molecule sort of 6 times, with 6 opportunities to earn sort of a return there. With Pathfinder, it's a critical piece of infrastructure down, really right down the center of the combined New Mexico and Texas system. So our original vision was more like a very long-haul, big gas pipeline where we have 2 or 3 or 4 large contracts on the line. We have obviously the large MVC-related commitment from Oxy that's in that traditional format.

But what we think today is what it looks like is it's allowing us to bring additional business and more business than we could have otherwise all across our system where we would have been potentially constrained by local disposal issues. And so we're really -- we will be able to use this pipe to provide like full solutions across the chain. And really also, we have a handful of customers now and we're growing every day that want to know specifically where the barrels are going, where they're being disposed and ask us to put them in separate places. And we're happy to do that, and we'll use Pathfinder to do it.

So I think the key thing to watch on Pathfinder is just the overall volumes on the pipe as it relates to sort of the return on the asset as opposed to watching for chunky incremental contracts. We do charge piece by piece for all our 6 services in the water business. So that volume will be a great indicator on how that's going. So right now, with the anchor commitment, it's around a 10% return asset. As you know, we've supersized it. We have 4 more times the capacity of that on it. And so as you see that volume creep up over the next year or 2, we'll creep our way towards hopefully a 20% plus return on that asset. So simplest way from here on out is sort of watching the volumes on it.

Got it. That's great color. Maybe sticking with water, but pivoting a little bit to beneficial reuse. Really just looking for an update on that front. How much capital is being spent there in '27, if any? And just how to think about when that business could really start to contribute to EBITDA? I suspect probably still a few years out, but just curious what's new there.

Yes, I think you're right, Spiro. I think you're still a little bit out from a contribution to EBITDA perspective. Team has been working really hard talking to a few producers, in particular, about a first commercial plant, hoping to sanction that, I'd say, within the next 6 months, maybe a year, but 6 months is the goal there. From a capital perspective, we haven't included anything in our 2027 capital budget related to that first commercial plant, but it will be smaller. So it won't be something that's a meaningful, large chunky capital project. It will be a smaller plant as we kind of build up scale-wise into something much larger one day.

Your next question comes from Zach Van Everen with TPH & Company.

Maybe on the 2027 capital front, I understand it's WhiteWater's project, but just trying to parse out the spend with most of it in the Delaware and North Loving wrapping up, we're getting to a $300 million to $400 million contribution on Solitude. Is that the right way to think about it? Or am I missing some additional CapEx on the Delaware G&P side?

No, you're missing some additional CapEx that we would be spending in the Delaware. So seeing the Delaware business growing in 2027. And yes, so we'll have to spend capital on water side, on the oil and on the gas side there. So there's incremental growth CapEx outside of Solitude when we're talking about spending 80% of the capital budget in the Delaware Basin next year.

Okay. Got it. That makes sense. And then maybe moving to the Powder. You mentioned MVCs on those 2 new agreements. Do those ramp up over time or they come on once the contract starts?

Yes. No, you'll see a ramp both in capital and volumes during the course of next year. So it's a pretty -- actually a pretty even ramp. You'll see some good production come online early, but otherwise, a pretty steady ramp through the year.

[Operator Instructions] Our next question comes from Ned Baramov with Wells Fargo.

It's one on capital allocation. And given your elevated spending expected next year, could you maybe touch on any preliminary discussions you may have had on distribution growth?

Sorry, it was a little hard to hear you. Got it. On the distribution growth. No, it's too preliminary. Obviously, it's a decision for the Board, and it's typically -- we typically do that in sort of the February time frame. But no, we're -- again, the strategy and the mission has been to deliver the strong yield that we have, continue to build distribution coverage and then sort of grow the distribution a bit behind EBITDA growth while we're building up that coverage. I think we're at roughly 1.4 or something like that right now, which is pretty good, but I think there's some room there to continue to grow that.

We'll also, frankly, just keep an eye on the stock. Our yield today is something like 8.75%, which seems a little peppy given sort of the strong outlook in the business. So we'll watch that as well. But again, this is -- these kind of things are really typically dealt with once we get our producer forecast in and set the budget and then work with the Board to figure out kind of where we go from here.

Understood. And then with activity in the Delaware ramping up, it seems that you've already placed an order for some of the long lead time items in your next processing plant. Could you maybe provide a little bit more details on the capacity, the cost, the location of this next project?

Yes. Again, we look at these things on a very long-term basis. And so relative to our overall gas thesis, in the basin and the customers that we worked with for a long time and really thinking about how to continue to build our processing stack. So it did seem like the right time, particularly given all the activity to put in some long lead time items. So we're still working towards the potential FID and where it would go exactly and all that. But when we look at our stack long term, we feel pretty good about making that move. We typically or historically, we've built trains around the 300 million a day kind of size. And so that's likely where we'll be heading with this one.

Your next question comes from Gabriel Moreen with Mizuho.

I just had 2 quick ones. One, can you just talk about hedging commodity sensitivity for next year given the rise in the forward curve, I guess, up until really recently? And then second would just be prospects for continuing to flatten the curve, I think, in terms of DJ declines in terms of what you're just seeing out there from producers of late?

Thanks, Gabe. Yes, on hedging, just remember, we don't have that much exposure, right? So we did adjust our oil price sensitivity to $50 million for every $10 of WTI change. It's still very nominal for natural gas. So to the extent we would look at hedging activity, it's really around some of our equity barrels and then skim oil, which is, again, new to us from about 1.5 years ago. So we look at that all the time. It's not been material. So it's sort of -- but something we would watch. I'm sorry, I forgot the second question.

Second question was just on DJ...

Yes, yes, on the DJ. So again, it's -- we have hedging programs. We look at that. But again, it's just hasn't been material. So on the DJ, yes, I mean, I think right now, we're expecting sort of the trend that started here probably around in July, which was a little later than we thought of sort of some volume declines coming in the DJ to continue.

I would say, in terms of the political environment in Colorado, there's really no change [indiscernible] few places where there's nothing unexpected in Colorado. So kind of business as usual there, which is to mean a lot of regulatory, both at the local and state level sort of challenges. But so far, we haven't seen anything from our customers that would say there's a shift from that sort of decline continuing.

We do mitigate that the best we can. We've been -- had great success with processing onloads. So you might see volumes sort of hang in there, but the mix will sort of shift as that becomes more processing as opposed to gathering and processing very slowly over time. That's about it. Yes, I wish I could say there was something exciting that was going to pivot the DJ. We just haven't seen that yet.

There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you.

Great. Thanks again. Thanks, everybody, for your interest and participation and to really all our stakeholders for the support of Western Midstream and our mission. I really do want to say we're grateful for our customers who entrust us with their energy flow assurance and for our employees and teammates whose engagement and daily demonstration of our core values allow us to safely deliver on our mission, which is so critical to America's quality of life. We look forward to seeing everybody in the investment community at upcoming conferences, hopefully, very soon. With that, we'll conclude the call.

This concludes today's call. Thank you for your participation. You may now disconnect, and have a wonderful rest of your day.

Good morning, and welcome to Western Midstream's Second Quarter 2026 fireside chat with our Chief Financial Officer and Senior Vice President, Kristen Shults.

Kristen, WES reported another quarter of record adjusted EBITDA. What are the drivers of this quarter's performance? And how does this position WES for the second half of the year?

Thanks, Daniel. Really great second quarter results for us. Adjusted EBITDA of $737 million, which is up 8% quarter-over-quarter. And if you look at the same second quarter in 2025, we're up 19% year-over-year. A few things behind that outperformance for the second quarter. First of all, water throughput up 5% quarter-over-quarter. So great performance on the water side. We saw some volumes that have been taken off for recycling come back on the system.

Also just where the producers are drilling and some of the water cuts in those areas got a little bit more water on the system. Delaware Basin gas was up 5% quarter-over-quarter. A bunch of that is really the Brazos acquisition that we just closed on in mid-June. So you have a little more than 2 weeks' worth of activity that's embedded in that adjusted EBITDA, and that's in that Delaware Basin gas throughput there.

And the DJ Basin has been doing a good job for the first half of the year, too, 2% up quarter-over-quarter. We still expect to see a decline in the DJ Basin in the second half of this year, but it's done a nice job of hanging in there.

The overall commodity price environment is still favorable. And so that's, of course, playing into our NGLs and the fixed recovery contracts that we have. And the plants are also operating really well. And so when that happens, we're able to produce more excess natural gas liquids volumes. And at the higher commodity prices, that really benefits our bottom line. So those are really the drivers behind the second quarter versus first quarter results.

And then we restated our 2026 guidance for the full year. Of course, the first half outperformance played into that restatement. But also just looking at the remainder of the year, we see commodity prices being higher just based on strip for the remainder of the year. The average price that we used was $71 per WTI for the second half of the year and then averages to $77 for the full year of 2026.

So once we take into account the incremental adjusted EBITDA from Brazos, the higher commodity price environment, the favorable throughput results we're seeing this year, as well as just how well the assets are recovering and performing, we were able to move that midpoint up by $250 million. And then you see that trickle through the rest of free cash flow and the discretionary cash flow. We moved those midpoints of $200 million, got a little extra interest expense and maintenance CapEx after the Brazos acquisition, but still a good movement.

WES is now pointing to the top end of the guidance range for capital expenditures in 2026. What are the drivers of this increase? And how should investors think about incremental spend versus our original budget?

There's a lot of puts and takes within our capital budget this year. We've had some projects roll out of the capital budget, but we've had a lot more projects and true expansion growth projects roll into the capital budget this year. So -- some of that's caused by the producer shifting some of their drilling activity into '26 that we weren't expecting until 2027, predominantly in the Delaware Basin and in the PRB.

We've also obviously acquired Brazos. And so we've got a little bit more capital in there now for Brazos to finish out the year. And then we mentioned on the call that we signed the 2 new gathering and process agreements in the PRB, and we're going to start spending money this year for those agreements as well.

North Loving II and Pathfinder are still on track. They're still on budget, actually below budget, should be coming online in the first half of next year. But as we really ramp up building out those facilities in the pipeline, you'll see an increase in Q3 capital and then we'll start to taper down a little bit in Q4 just as those projects are ending or getting near their end point.

Speaking of the Powder River Basin, WES announced 2 agreements in the basin. What is the impact of these new agreements to WES in '26 and in '27?

Yes. So as I just mentioned, we're going to spend a little capital in '26 on those agreements. We'll spend more in 2027. Should see from those 2 agreements as well as the expectations we already had for the PRB, some growth in the PRB in 2027 as well.

We're really excited about the agreement, the 270,000 acres that we had dedicated. That's -- I mean that's a home run in terms of acreage dedication and shows the producers really moving towards more of a full-scale development within the PRB from both of those producers. So excited to add that in. It comes with substantial minimum volume commitments as well as the acreage dedications and should be a nice addition into the portfolio.

During the quarter, WES announced the start-up of its second joint industry project for beneficial reuse in the Delaware Basin. What can you tell investors about this project? And how does it benefit WES in the future?

Yes, Daniel, we're really excited about JIP 2. So this is our second engagement with the other collaborators in the JIP, Exxon, Chevron, Devon and Conoco. And we're testing out various beneficial reuse technologies in JIP 2 in the Permian. There is just so much water that is coming out of the Permian every single day, 19 million barrels of water that comes out of the Delaware that we need to move in order to move the oil and the gas that our producers and customers are expecting us to move every day.

The beneficial reuse aspect, we look at the water services that we provide, very integrated platform. We can not only gather it, but we can dispose of it, we can recycle it. And one day, we can do the beneficial reuse aspect and turn it into this reclaimed fresh water that can be used for industrial cooling or surface discharge, nonconsumptive agricultural irrigation.

So JIP 2 is 10x the size of JIP 1. It takes 2,000 barrels at the beginning of the plant and then it delivers 1,000 barrels of reclaimed fresh water. So very excited about this. We're going to keep testing and bringing down the cost of the membranes through the R&D we are doing out there and hopefully, this sets us all up to sanction our first commercial plant.

Kristen, thank you for joining us today. For our listeners, if you have any additional questions, please feel free to reach out to us. Our contact information is located in the Investor Relations section of our corporate website.

Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Western Midstream's Second Quarter 2026 Conference Call. Today's call, the accompanying slide deck and last night's press release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward-looking statements we discuss today. Relevant reference materials are posted on our website.

With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer.

I'll now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. Yesterday, we reported record adjusted EBITDA of $737 million, an increase of 8% sequentially and 19% compared to the prior year period. Our strong second quarter results reflect record throughput from our natural gas and produced water businesses in the Delaware Basin, approximately 2.5 weeks of contribution from the Brazos acquisition and the benefit of our fixed recovery natural gas processing contracts in conjunction with higher overall commodity pricing. In mid-June, we closed the $1.6 billion acquisition of Brazos Delaware II, funded with approximately $800 million in cash and $800 million of WES common units based on the volume-weighted average unit price at the time the acquisition agreement was signed. The Brazos acquisition expands our gathering and processing footprint in the Delaware Basin and reflects our discipline of only deploying capital that sustains or grows the distribution over time.

It is accretive to per unit metrics, protects the partnership's balance sheet and investment-grade credit ratings and diversifies our customer base and ownership. The integration is off to a strong start. Our teams are focused on optimizing the legacy Brazos system and connecting it to the legacy WES system, which we expect to be completed by year-end. This will enable us to direct more volumes to Brazos' processing plants that have spare capacity, enabling us to process more volumes internally and offload fewer volumes, thus creating more value for WES unitholders. We also expect to capture approximately $15 million to $20 million of cost synergies over the coming quarters in connection with the Brazos acquisition, primarily through general and administrative cost elimination and reduced operation and maintenance expense from supply chain efficiencies. Additionally, we have recently seen a number of wells previously planned for 2027 move into the second half of 2026 from several customers on the Brazos acreage.

We will continue to remain in close contact with these new customers regarding their near-term plans, but we would expect these developments to result in increased throughput relative to our initial underwriting assumptions when we consummated the deal. For the remainder of the year, higher commodity prices continue to incentivize our customers to increase activity, particularly in the Delaware and Powder River Basins positioning us for incremental throughput growth in 2027. In the Delaware Basin, multiple customers have communicated that they intend to accelerate activity into the second half of the year, which should drive throughput growth as we exit 2026 and into 2027. We also recently entered into new gathering and processing agreements with 2 of the most active producers in the Powder River Basin. These long-term agreements increased dedications to WES by approximately 270,000 acres, which contain over 1,000 remaining drilling locations and are backed by substantial minimum volume commitments.

These agreements plus the associated volume commitments demonstrate producers' increasing focus on the Powder River Basin as they begin to more fully develop their vast acreage positions in the basin. Based on the strength of our first half results, continued elevated commodity prices and the Brazos acquisition, we are raising the midpoints of our full year 2026 adjusted EBITDA, distributable cash flow and free cash flow guidance ranges by 10%, 10% and 20%, respectively. We now expect 2026 adjusted EBITDA to be between $2.75 billion and $2.95 billion, implying a midpoint of $2.85 billion, an increase of $250 million compared to our original guidance range. Additionally, we now expect 2026 distributable cash flow to be between $2.05 billion and $2.25 billion and 2026 free cash flow of between $1.1 billion and $1.3 billion, which represents increases of $200 million at the midpoint. Kristen will provide more detail on our updated guidance ranges shortly.

Finally, as we announced in mid-June, JIP 2, our second produced water treatment demonstration facility near Red Bluff Reservoir in Reeves County, Texas, was placed into service during the second quarter. It is now delivering approximately 1,000 barrels per day of reclaimed freshwater, roughly 10x the volume of JIP 1. The facility is designed to refine operating costs, evaluate reliability and demonstrate consistent reclaimed freshwater recovery for fit-for-purpose applications, including industrial cooling, surface discharge and nonconsumptive agriculture irrigation while protecting existing water sources for surrounding communities. We view JIP 2 as a critical step towards sanctioning our first commercial scale facility. In the Permian, crude oil and natural gas flow assurance does not happen without a solution for produced water and each step forward on beneficial reuse deepens what we can offer producers across all 3 streams.

Over the past few quarters, produced water handling has been our fastest-growing product line, and we believe that beneficial reuse provides another path for growth as water-to-oil ratios continue to increase and as produced water continues to outpace natural gas, crude oil and NGL throughput growth.

With that, I'll turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the second quarter. Danny?

Thank you, Oscar, and good morning, everyone. Second quarter natural gas throughput increased 3% sequentially, driven by 2.5 weeks of contribution from the Brazos acquisition and another quarter of record natural gas throughput from the DJ Basin. Additionally, our crude oil and NGLs throughput increased slightly and our produced water throughput increased by approximately 5% on a sequential quarter basis. Our second quarter per Mcf adjusted gross margin for natural gas assets increased by $0.03 compared to the prior quarter, primarily driven by higher overall commodity pricing on excess natural gas liquids volumes under our fixed recovery contracts and by 2.5 weeks of contribution from the Brazos acquisition. We expect third quarter per Mcf adjusted gross margin to be slightly lower than the second quarter as commodity prices have moderated, so we now expect our full year 2026 adjusted gross margin to average approximately $1.30 per Mcf.

Our second quarter per barrel adjusted gross margin for crude oil and NGLs assets increased by $0.14 compared to the prior quarter, primarily driven by higher deficiency fees in the Delaware Basin. We expect our third quarter per barrel adjusted gross margin to be slightly lower than the second quarter, but we still expect our full year 2026 to range between $3.10 and $3.15 per barrel for 2026. Our second quarter per barrel adjusted gross margin for produced water assets increased by $0.06 compared to the prior quarter, primarily driven by higher throughput. We expect our third quarter per barrel adjusted gross margin to be slightly lower than the second quarter, but we still expect our full year 2026 to average approximately $0.91, especially if the crude oil strip for 2026 remains elevated.

For the remainder of the year, we now expect portfolio-wide average year-over-year throughput to increase by mid-single digits for natural gas and to decline by low single digits for crude oil and NGLs, reflecting 6.5 months of Brazos contribution and higher customer activity in the back half of the year. Additionally, we now expect average produced water throughput to increase by approximately 85% year-over-year, driven by the Aris acquisition and strong performance from our legacy water business, which is slightly higher than our original expectation of approximately 80% growth coming into the year. In the Delaware Basin, we now expect average year-over-year throughput to increase by low to mid-teens percentage growth for natural gas and for crude oil and NGLs to increase by low single-digit percentage growth in 2026 with the Brazos acquisition being the primary driver of the improved forecast.

During the second quarter, we again saw certain customers curtail Delaware Basin throughput due to negative Waha natural gas pricing, but we exited the quarter with no curtailments as certain long-haul pipes returned for maintenance and the GCX expansion in the Hugh Brinson Pipeline entered service. We expect Waha pricing to be less volatile through the remainder of the year particularly as the Blackcomb Pipeline comes online later this year. In the DJ Basin, throughput outperformed in the first half of the year, primarily driven by strong well performance and higher onloads from other midstream companies. This outperformance improves our full year outlook for both natural gas and crude oil and NGLs throughput, and we now expect a low single-digit decline for natural gas and a mid-single-digits decline for crude oil and NGLs on average year-over-year. In the Powder River Basin, we now expect throughput to decline by mid- to high single digits on average year-over-year.

As Oscar previously mentioned, we recently signed long-term gathering and processing agreements with 2 large producers in the basin that add approximately 270,000 dedicated acres to WES's footprint, support years of development drilling and are backed by multiyear minimum volume commitments. These customers plan to increase activity in the back half of this year, driving volume growth as we exit 2026 and again in 2027. Finally, regional natural gas pricing has improved in the Rocky Mountains, and we continue to expect mid-single-digit percentage throughput growth from our other natural gas assets, driven by a full year's contribution from Williams Mountain West Pipeline expansion, the tie-in of Kinder Morgan's Altamont Pipeline and Dar -- Chipeta processing plant in Utah in 2025 and steady throughput at our Brasada plant in South Texas.

With that, I'll turn the call over to Kristen to discuss our financial performance.

Thank you, Danny, and good morning, everyone. During the second quarter, we generated net income attributable to limited partners of $395 million, record adjusted EBITDA of $737 million and distributable cash flow of $537 million. Relative to the first quarter of 2026, adjusted gross margin increased by $84 million, driven primarily by strong throughput growth from our produced water business, approximately 2.5 weeks of throughput from the Brazos Delaware acquisition and higher commodity prices on excess natural gas liquids volumes. Operation and maintenance expense increased approximately 8% quarter-over-quarter, mostly driven by higher disposal and land fees associated with the increased produced water throughput and higher chemicals and treating expense.

Inclusive of both the legacy Aris and Brazos assets, we now expect our full year 2026 operation and maintenance expense to increase by approximately 20% to 25% year-over-year, which is still a meaningful reduction on a combined company basis as we execute on synergy capture and operational cost reduction efforts. For the third quarter specifically, we expect operation and maintenance expense to increase in the high single-digit percentage range, driven by the full quarterly run rate from Brazos, the increased asset maintenance and repair work that's typical during the third quarter and higher expected utility costs. Pro forma for the Brazos acquisition, we now estimate reimbursements of approximately 60% of our portfolio-wide utility costs from our customers.

Turning to cash flow. Our second quarter cash flow from operating activities totaled $535 million, an increase of $65 million over the first quarter of 2026. Our operating cash flow resulted in $264 million of free cash flow generation and free cash flow after our first quarter 2026 distribution that was paid on May 15 was a use of cash of $111 million. Turning to the balance sheet. We ended the quarter with more than $1.8 billion of total liquidity and a trailing 12-month net leverage ratio pro forma for a full year of Brazos contribution of approximately 3.15x. In June, we issued $700 million of 10-year senior notes to refinance the commercial paper and revolver borrowings used to fund the Brazos acquisition.

The 123 basis point spread to U.S. treasuries was the tightest 10-year spread for any WES 10-year senior note issuance in the partnership's history. On July 20, we declared a quarterly distribution of $0.93 per unit, unchanged from the prior quarter, and it will be paid on August 14 to unitholders of record as of July 31. Turning to guidance. As Oscar mentioned, we are raising our 2026 adjusted EBITDA range to be between $2.75 billion and $2.95 billion, implying a new midpoint of $2.85 billion, an increase of $250 million at the midpoint relative to our initial guidance announced in late February.

This reflects the contribution from the Brazos acquisition, the strong commodity price environment in the first half of 2026 and a higher commodity price forecast for the second half as well as increased customer activity levels in the second half of the year in both the Delaware and Powder River Basins, as both Oscar and Danny previously mentioned. While second half 2026 commodity prices remain above what we modeled coming into the year, they have recently moderated, causing us to use an average oil price of $71 per barrel for the second half of the year and resulting in a full year average price of approximately $77 per barrel.

On capital, we are maintaining our 2026 capital expenditure range of $850 million to $1 billion, though we now expect to be toward the high end of the guidance range. This is primarily driven by new expansion opportunities in the Delaware and Powder River Basins that were not contemplated in our prior forecast. In particular, the new long-term gathering and processing agreements in the Powder River Basin will require incremental growth capital for expanded gathering facilities and additional compression, a portion of which will be spent in 2026. Over half of our 2026 capital program remains directed towards the construction of the Pathfinder pipeline and the North Loving II natural gas processing train.

We continue to expect capital spending to remain elevated through the third quarter before moderating in the fourth as we approach Pathfinders and North Loving IIs expected in-service dates in the first and second quarters of 2027, respectively. We are increasing our distributable cash flow or DCF guidance to a range of $2.05 billion and $2.25 billion, implying a midpoint of $2.15 billion, an increase of $200 million at the midpoint. This again mostly reflects the Brazos acquisition and higher commodity price environment through 2026. We are also raising our free cash flow guidance to a range of $1.1 billion to $1.3 billion, implying a midpoint of $1.2 billion, also an increase of $200 million at the midpoint. We continue to view free cash flow as a key indicator of the partnership's financial strength, while DCF provides investors an additional measure of our capacity to fund the distribution and a substantial portion of our expansion capital program.

Finally, turning to the distribution. Our target of at least $3.70 per unit paid in 2026 remains unchanged. Our annualized run rate of $3.72 reflects the increased distribution rate of $0.93 per unit that commenced with the first quarter 2026 distribution and that will be paid again on August 14 for the second quarter distribution. With that, I will now turn the call over to Oscar for closing remarks.

Thanks, Kristen. Before we open the call for questions, I want to leave you with a few closing thoughts. First, WES has multiple ways to win and grow across the portfolio and across all 3 product lines: natural gas, crude oil and NGLs and produced water. Higher customer activity in the Delaware Basin, combined with new commercial agreements and increasing rig count in the Powder River Basin positions WES for increasing natural gas throughput as we exit this year and again in 2027. The Brazos acquisition adds further momentum, and we continue to expect it to generate approximately $100 million of adjusted EBITDA in the second half of 2026. The Pathfinder produced water pipeline and the North Loving II natural gas processing train will provide growth and financial uplift when both of those projects come online early in the first and second quarters of 2027, respectively.

Second, beneficial reuse remains an important longer-term extension of our produced water strategy. With JIP 2 now in service and producing roughly 10x the reclaimed freshwater of JIP 1, we continue to progress our goal of sanctioning our first commercial scale facility, adding another path for future growth. Third, our growth is supported by our strong balance sheet and ample liquidity. We ended the quarter with more than $1.8 billion of total liquidity and a trailing 12-month net leverage ratio pro forma for a full year's contribution from Brazos of approximately 3.15x. This financial strength gives us the flexibility to fund organic expansion while returning capital to unitholders and pursuing additional strategic M&A as we did with Brazos and Aris. Finally, WES continues to offer one of the most compelling equity return profiles in the midstream sector.

Our 12% to 14% potential total annual equity return is underpinned by a 7% to 9% current cash yield and a 4% to 5% long-term adjusted EBITDA growth rate, driving further upside over time. We exceeded that long-term growth rate in both '24 and '25, and we expect continued outperformance in 2026, generating expected total returns well above 14%. Combined with our strong balance sheet, investment-grade credit ratings and ample liquidity, our compelling returns continue to differentiate WES within the midstream sector. In closing, WES enters the second half of 2026 from a position of strength. We delivered record adjusted EBITDA this quarter, raised full year guidance and made significant progress integrating the Brazos acquisition.

Looking ahead, we have multiple paths to continued growth. Pathfinder and North Loving II are progressing on schedule, rising activity across most of our core basins and several recent commercial successes that will strengthen our growth profile for years to come. I am confident in our team's ability to execute and continue creating value for our unitholders. I also want to say thank you to our entire Western Midstream workforce for their continued hard work, engagement and dedication to our partnership. We lead with our core values of partnership, customer focus, resourcefulness and performance to deliver on our mission of improving lives through safe, sustainable and efficient energy delivery.

With that, we'll open the call for questions.

[Operator Instructions] Your first question comes from the line of Gabe Moreen with Mizuho.

Just had a quick question, I guess, on -- with the acceleration of activity from some of your customers into the back half of this year, can you just talk about any revised expectations for filling up the spare processing capacity you've got for Brazos and then also at North Loving and expansion there and what it may mean also for future processing -- potential future processing expansions?

Sure. Thanks, Gabe. It's Oscar.

Yes. I think we are increasingly bullish on some of the outlook for gas as probably no surprise. We do have excess capacity at Brazos. It will probably take us towards the end of the year to connect the systems. So we won't really be taking advantage of that significantly until that time, and we expect to move a lot of volumes, especially volumes we've been offloading onto the plant. That said, the customer base there is much more active than we expected than we underwrote in the transaction. So we're probably going to see that plant head towards being full pretty quickly. I never mind us shifting over offloaded volumes. And then I guess with respect to additional capacity, we continue to review our processing stack. I think we are definitely in the mode of trying to understand the outlook. We'll know more as we progress through the year. We're probably at capacity in terms of space at North Loving. So next plant would maybe be somewhere else, but we're certainly in that mode now considering where to move plant capacity next. So it's a pretty good outlook.

Great. Maybe if I can ask again on -- a follow-up on Pathfinder. You mentioned the project is progressing according to plan. Can you talk about contracting strategy there? There's been a lot of discussion on your call here in the remarks about water and how that's your fastest-growing area, how that may translate to Pathfinder beyond kind of your anchor customer with Oxy? -- sorry, your contract with...

Yes. No. Thanks. So Pathfinder is going extremely well. I would say it's going better than planned. We've done a lot of work to bring down the total capital costs from the original sort of budget, and so that's gone well. We've also done -- you'll remember, we announced some land work where we've gained some excess core space capacity and sort of did a little reroute in part of the system. So that helped with capital costs and returns as well. So with the base Oxy contract that takes a little less than 1/3 of the capacity of the pipe and with some of the work we've done around the commercial side, that team has been successful in winning sort of incremental gathering and disposal opportunities that will ultimately, over the long term, need to utilize Pathfinder, we price that accordingly.

So we're seeing that sort of chip away at the excess capacity. So right now, we're looking at returns have moved up about our expected returns by about 500 basis points from high single digits, 10% on this asset to closer to 15%, which you'd expect with all the work we've done. And then as we continue to fill that pipe into the next year or so, once it comes online, we expect returns to get into the 20% range. So everything fundamentally about the water business quite honestly, from our perspective, is much better than we thought and has improved more quickly than we anticipated when we sanctioned this project. So I think Pathfinder becomes kind of like a header system or a loop in terms of our entire integrated water system in New Mexico and Texas.

So we probably will see another big contract or 2. But I think as well, we're going to see the utilization of that pipe in more integrated expansion of our overall gathering disposal system. So it's evolving. No change in our bullishness on filling the pipe and that time line, perhaps a change in the mix of what the contracts look like as a result of the changing environment here. And the final point on that one, too, is we're responding to sort of changing customer outlooks on how we want to handle their water and what they want on the water service providers. So our largest customers are getting very specific on where they want the water dispose, where they want to move to, how they want to sort of manage it and track it, which I think [ Creek ] in particular, is sort of a signal that this is a growing challenge for our customers.

It's critical to overall oil and gas flow assurance and they want to deal with counterparties that are investment grade and can move water all over the system. And we could find ourselves sometimes moving water north and east and sometimes moving it to the south. So a lot of flexibility in that pipe and sort of the integrated footprint we now have.

Your next question comes from the line of Jeremy Tonet with JPMorgan.

This is Francina on for Jeremy. And just wanted to touch a bit on kind of the guide update here with the $200 million range provided between that and a couple of levers that we've identified on our end being the 2Q Brazos giving us $100 million in the second half, commodity prices and then throughput outlook being improved. Is that a fair characterization of kind of the main -- that we're looking to in the second half to kind of drive us to the higher end of the range versus the lower end? Can you talk a little bit about that? And then maybe just thinking about shaping results through the end of the year. Can we kind of expect a linear step-up into 4Q? Or how will that O&M increase really play at the end of the year? That would be helpful.

Yes. So I think you are thinking about it correctly. When we revised guidance, the thought processes that came in for establishing the new midpoint has to do with Brazos, the $100 million you referenced. And then if you're using our commodity price sensitivity that we've got within our deck, we've had about a $20 change in WTI from when we first set budget. So that's about $80 million of incremental commodities that we're seeing through all of 2026. And then the remainder, as you mentioned, we are seeing increased throughput on the system, and we've also are doing just a great job on the asset side and the recovery side at our plants. So that's all contributed to the $250 million move in adjusted EBITDA up to that new midpoint.

As we go through the rest of the year, we do expect OpEx to increase slightly. We're -- obviously, we've got Brazos in the mix now. And so you only had about half a month of Brazos in the second quarter. And so as we get that all mixed in, we'd expect that to raise a little bit more. And then we're obviously seeing the increased throughput just on the system as we talked about some of the rigs coming from '27 and pushing it into 2026. We do still expect to see the DJ declining in the back half of this year. And so that's going to play into the adjusted EBITDA and the curve that we see there.

That's very helpful. And then I wanted to dig a bit deeper just on the inorganic growth opportunity set at hand. Brazos seems to be kind of a nice adder to the overall portfolio. And I'm sure that there are many other opportunities here. So if you could maybe just describe that opportunity set and then maybe the strategy that you're taking with these opportunities? Is it going to be kind of a higher mix of bolt-ons is what you're looking for or a kind of larger acquisition to reinvent the strategy?

Sure. So our M&A strategy is sort of unchanged. We like to talk about programmatic M&A. And all that really means is just staying vigilant in the market and looking for opportunities that fit sort of our ideal parameters. And for us, that's sustaining or growing the distribution, it's protecting the balance sheet and our investment-grade ratings, diversifying our customer and ownership profile. We don't always get all those, but the key ones that are critical, we measure in terms of per unit metrics, so accretive on per unit metrics. So with that discipline, there's still opportunities certainly out there.

Our strong preference is always to grow organically where we can deploy capital generally at higher returns with less risk in terms of execution, and we're certainly seeing that in our 2 big projects that we've been executing well on here recently. So all that's pretty unchanged, and we'll try to continue to be opportunistic and look for ways to improve our footprint and improve the diversity of assets that we have and how we optimize those going forward.

[Operator Instructions] Our next question is from Burke Sansiviero with Wolfe Research.

Just piggybacking off the last M&A question there. Just how focused are you on the Permian Basin for bolt-on M&A relative to other basins? And would you say going outside the Permian is a higher bar?

Yes. I guess what we've seen is we certainly love the Permian and all the data says it continues to be sort of the best long-term basin in the United States. And so we're we continue to be super fans there and like transactions there. There are opportunities in other basins for sure. And again, if an opportunity sort of checks all the boxes I just mentioned, we'll certainly consider it. And importantly, our advantage lies in our ability to leverage the footprint that we have. So if there's something out there that sort of fits our parameters, we'll certainly look at it. We also tend to see outside the Permian, valuations are just more reasonable in terms of like short-term metrics. And so we think about that as well. So again, the Permian sort of our key basin, but we like our other footprint we have, and we'll continue to look for opportunities there.

And can you just speak more on the water treating plans and how soon you could sanction a stand-alone WES project and then how much capital do you think the company could deploy this opportunity set over time?

And you're asking about the water reuse. Is that right?

Yes, the beneficial reuse.

Yes, definitely. So really, that's such a key -- so again, kind of all the things we discussed so far in the call have been the sort of real-time growth opportunities that we have at this very moment. Beneficial reuse, water treatment and the like are sort of a key component of sort of the next stage of our growth and driving that as well and hopefully, frankly, adding on to sort of our base growth rate that we've been talking about. So it's a key strategy for us. Our entire water business sort of sets up well for that one really large footprint across 2 states. The Pathfinder pipe itself gives us a lot of optionality for scale projects at its terminus. Given today, it will have an 800,000 barrels a day capacity on the pipe and easily expandable to over 1 million barrels a day. So we've got all the pieces in place.

With our Aris acquisition, we inherited a great team that has given us a great, frankly, technical advantage in terms of beneficial reuse. So while we're technology agnostic, we think we've got an edge in that case. And so we're working hard to sanction a commercial scale plant. I know you're responding to our disclosure around a joint industry project, JIP 2, where we've got a second demonstration plant at 10x the capacity of the first really to continue to work out the kinks through R&D and look for the scaling opportunities to bring costs down for beneficial reuse.

So it plays into everything happening right now in the Permian from an excess of produced water and the challenges there to the needs of the region, including just generally offsetting aquifer and other water use that should be used for humans and using instead treated produced water ideally for industrial processes, nonconsumable irrigation, all those things. So we're super excited about it. We've got great partners, and we're moving that technology along. So we hope to be announcing something in the not-too-distant future in terms of commercializing that piece of the puzzle.

There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you.

Well, great. Well, thanks again for everyone's interest and participation on the call and really to all our stakeholders for their support of WES and our mission. We're especially grateful for our customers who have entrusted us with their energy flow assurance and our employees and teammates whose engagement and daily demonstration of our core values allows us to safely deliver on our mission, which is so critical to America's quality of life. We look forward to seeing everybody, including the investment community at upcoming investor and industry conferences really as soon as next week. So we'll see everybody soon. And with that, we'll conclude the call.

This concludes today's conference call. You may now disconnect.

Good morning, and welcome to Western Midstream's First Quarter 2026 Fireside chat with our Chief Executive Officer and President, Oscar Brown; and our Senior Vice President and Chief Financial Officer, Kristen Shults.

Oscar, WES's reported adjusted EBITDA of $683 million in the first quarter, a 15% increase year-over-year. What drove that outperformance? And what does it tell us about the trajectory of the business for the rest of the year?

Thank you, Daniel. It was truly a great quarter for us, and the results reflect the cumulative impact of several strategic decisions we've made over the past 18 months. Three primary drivers came together in the first quarter: the full quarter contribution from the Aris acquisition, per day throughput growth across all 3 product lines and the continued success of our cost reduction efforts.

Further, our adjusted gross margin benefited from the meaningful increase in crude oil prices in March. On the Aris front, the integration is complete and the assets are performing well. The Aris contracts share the fee-based foundation of WES's broader portfolio, but also provide meaningful upside when crude oil prices are elevated because we retain skim oil volumes. In March, as crude oil prices rose, we captured incremental value through those skim oil recoveries and that dynamic is something we expect to benefit from going forward in this environment. The Delaware Basin continues to be our primary driver of growth in 2026.

During the quarter, our natural gas throughput increased by 3% despite throughput being negatively impacted by WAHA-driven curtailments during the quarter. We also achieved record crude oil and NGL throughput of 272,000 barrels per day, up 4% sequentially and 6% year-over-year. Produced water throughput hit a record 2.8 million barrels a day, up 4% sequentially. These aren't coincidental results. They reflect deliberate customer development, significant infrastructure investment and years of building one of the most integrated 3-stream platforms in the basin. Equally important is our commitment to cost discipline. Excluding the Aris acquisition, we reduced operation and maintenance expense by 7% year-over-year while still delivering higher throughput. That operating leverage improvement is real, durable and directly translating into earnings power.

Let's turn to the acquisition announcement. WES is paying $1.6 billion for Brazos Delaware II, a privately held gathering and processing platform in the Delaware Basin. Can you walk us through the strategic logic, why Brazos? Why now? And what makes this asset unique relative to other M&A opportunities you have evaluated?

Thanks, Daniel. Happy to. Brazos is exactly the kind of asset WES has been looking for, high-quality, contiguous bolt-on that amplifies the value of our existing asset base. Strategically, the fit is exceptional. The Brazos system is immediately adjacent to our existing West Texas complex operating across the heart of the Texas Delaware Basin. Brazos comes with approximately 470,000 dedicated acres, which increases our total Delaware Basin dedicated acreage by nearly 50% to more than 1.4 million acres.

We're also adding 460 million cubic feet per day of natural gas processing capacity with the Comanche complex, which immediately expands our Delaware Basin processing capacity by approximately 20% to 2.75 billion cubic feet per day. WES will have just over 3 billion cubic feet of natural gas processing capacity in the basin once North Loving II comes online in the second quarter of 2027. The asset is also an excellent fit for our MLP structure. Nearly all of the approximately 3,500 identified drilling locations at $65 per barrel are within 2 miles of existing low-pressure gathering infrastructure, which translates into very limited incremental capital requirements for new well connections. That's a fundamental driver of the free cash flow conversion we're looking for.

On the customer side, the Brazos contracts diversify our revenue mix meaningfully. The existing contracts are long-term fixed fee arrangements with a weighted average remaining life of over 9 years, anchored by investment-grade and high-quality private Permian producers. This structure is philosophically aligned with WES's own contract framework, which provides durable cycle-resistant cash flows. In terms of timing, the midstream M&A environment remains constructive, and our balance sheet is one of the strongest positions it's ever been. We have the financial flexibility to move decisively and structuring the deal is 50% cash and 50% WES common units allows us to maintain pro forma net leverage of approximately 3x throughout 2026. That's consistent with our conservative leverage philosophy and preserves capacity for our organic growth program.

Can you walk us through the financial mechanics of the deal, the valuation, accretion assumptions and how you're thinking about the return profile relative to WES's cost of capital?

The $1.6 billion purchase price represents approximately 8x 2027 estimated EBITDA on a stand-alone basis. We expect that multiple to compress to approximately 7.5x as we commercialize the roughly 125 million cubic feet a day of currently available processing capacity at the Comanche complex and capture identified synergies from integrating the systems. That available capacity is really an important point.

The Comanche plant is running at approximately 73% utilization today, processing 336 million cubic feet a day as compared to the 460 million cubic feet a day of nameplate capacity. As the dedicated acreage is developed and volumes ramp, particularly given the density of proximate drilling locations, there is a clear line of sight to higher throughput without proportional incremental capital. That's where the EBITDA multiple improvement story is the most compelling. From an accretion standpoint, the transaction is immediately accretive to estimated 2026 DCF per unit. Assuming a close by the end of the second quarter, we expect Brazos to contribute approximately $100 million of incremental adjusted EBITDA in 2026. Meaningful in the context of our existing full year guidance range.

In terms of returns relative to our cost of capital, the combination of an 8x entry multiple declining to 7.5x with identified upside levers, coupled with the low ongoing capital intensity of the business supports returns meaningfully above our weighted average cost of capital.

Oscar, with Brazos closing in the second quarter and 2 major organic projects, Pathfinder and North Loving II set to come online in early 2027, how do you think about balancing capital deployment and financial discipline? And how should investors think about guidance and the distribution trajectory from here?

This is really the crux of the WES investment case, and I want to be direct about it. We have a strong balance sheet, and we intend to keep it that way. We ended the first quarter with more than $2.5 billion in total liquidity, trailing 12-month net leverage of approximately 3.1x. After the Brazos close, we expect to maintain pro forma net leverage of approximately 3x throughout 2026, consistent with our long-standing target and peer-leading among midstream MLPs.

On guidance, we are not formally updating our full year ranges today because we haven't yet received revised drilling plans from our producers for the year. But what I can tell you is that based on current commercial discussions, the favorable commodity price environment and our improving cost structure, we expect to be towards the high end of our adjusted EBITDA guidance range of $2.5 billion to $2.7 billion and our distributable cash flow guidance range of $1.85 billion to $2.05 billion, and that's before any Brazos contribution. We plan to provide updated guidance in conjunction with our second quarter results after the Brazos close.

On capital deployment, roughly half of our $850 million to $1 billion of 2026 capital budget is directed towards Pathfinder and North Loving II. Two high confidence projects in the core of the Delaware Basin. Both projects are on schedule for first quarter and second quarter 2027 in-service dates, respectively, and both are underpinned by volume commitments that give us conviction in their returns. Regarding the distribution, our first quarter distribution of $0.93 per unit, up 2.2% sequentially, keeps us on track for full year calendar distribution guidance of at least $3.70 or $3.72 on a run rate basis.

Our distribution strategy is straightforward: grow distributions at a rate slightly below adjusted EBITDA growth in order to steadily increase coverage over time. The Brazos acquisition supports this strategy, adding strong free cash flow to our asset base as we look to grow the distribution over time.

To close, how would you summarize the WES investment thesis at this moment? And what are the 2 or 3 things you most want investors to take away from this conversation?

This is my favorite question. First and foremost, WES is operating from a position of strength. We just delivered the strongest quarter in the partnership's history from an adjusted EBITDA perspective. The Aris integration is complete, Pathfinder and North Loving II are on schedule, and we expect to close Brazos by the end of the second quarter. These aren't aspirational milestones. What it demonstrates is that we're executing on our priorities and commitments. And the team that delivered Mentone III, North Loving I, the Meritage integration and the Aris integration in the last several years is mostly the same team executing today. Investors should have high confidence in WES' ability to deliver.

Second, the Delaware Basin is the foundation of our growth strategy, and we're building one of the strongest asset bases in the Delaware Basin. More than 60% of our 2026 adjusted EBITDA is expected to come from the Delaware Basin, and that proportion will only increase as Brazos closes. Pathfinder comes online and North Loving II adds processing capacity. With approximately 3,500 drilling locations at $65 per barrel on Brazos acreage alone and continued development across our legacy footprint, we have line of sight to decades of throughput growth in the most prolific basin in North America.

And third, WES offers one of the most compelling return profiles in the midstream sector. Our potential 12% to 14% annual equity return is underpinned by an almost 9% current cash yield and a 4% to 5% long-term adjusted EBITDA annual growth rate that drives further upside. We're building a midstream company designed to grow unitholder value over the long term. We believe the combination of yield, growth, financial discipline and strategic positioning makes WES one of the most compelling investment opportunities in the midstream sector today. We look forward to continuing to demonstrate that in the quarters ahead.

Oscar, Kristen, thank you for joining us today. For our listeners, if you have any additional questions, please feel free to reach out to us. Our contact information is located in the Investor Relations section of our corporate website at westernmidstream.com.

Ladies and gentlemen, good morning. My name is Maddy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners First Quarter 2026 Earnings Conference Call. [Operator Instructions]

And I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you for joining us today for Western Midstream's First Quarter 2026 Conference Call. I'd like to remind you that today's call, the accompanying slide deck and last night's press releases contain important disclosures regarding forward-looking statements and non-GAAP reconciliations, please reference Western Midstream's most recent Form 10-K and 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward-looking statements we discuss today. Relevant reference materials are posted on our website.

With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer. I'll now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. Yesterday, we reported record adjusted EBITDA of $683 million, increasing 7% sequentially and 15% compared to the prior year period. Our first quarter outperformance reflects the full quarter contribution from the Aris acquisition, per day throughput growth across all 3 product lines and successful cost reduction efforts. Additionally, as crude oil prices rose in March, we captured incremental benefits from skim oil recoveries on our produced water system and from our fixed recovery natural gas processing contracts.

Yesterday, we also announced the $1.6 billion acquisition of Brazos Delaware 2. This strategic bolt-on exemplifies our programmatic M&A philosophy, transactions that enhance the value of our existing assets, diversify and enhance our high-quality customer base and generate incremental adjusted EBITDA and strong free cash flow for our unitholders, which is completely aligned with our philosophy of only deploying capital if it sustains or grows the distribution.

While we are not currently updating our annual guidance ranges as we have not yet received formal changes to our producers' drilling plans for this year, we do expect to be towards the high end of both the adjusted EBITDA and distributable cash flow ranges without taking into account the impact of the Brazos transaction. This improved outlook is due to increased commercial discussions, the very favorable commodity price environment and our improving operating leverage due to our successful and ongoing cost competitiveness efforts.

With that said, we intend to reevaluate our 2026 guidance ranges in conjunction with our second quarter results after the scheduled close of the Brazos transaction. Additionally, one of our largest producers in the Powder River Basin recently informed us they would accelerate activity levels in the back half of 2026 in order to increase volumes earlier in 2027, this in combination with our expectation of improved Waha natural gas pricing in the second half of this year gives us growing confidence in 2027 potential, certainly is the current elevated commodity price environment holds.

Taking a closer look at the Brazos acquisition, the assets include natural gas and crude oil gathering systems that are highly complementary to our existing Texas Delaware Basin footprint. Integration creates a larger, more scalable midstream system in the core of the premier basin in North America.

These assets fit well within our portfolio for several reasons. First, this acquisition materially strengthens and expands our Delaware Basin asset base. The Brazos system is contiguous to our existing West Texas complex with over 470,000 dedicated acres to more than 900 miles of pipeline and approximately 460 million cubic feet per day of processing capacity, immediately increasing our West Texas dedicated acreage by 49% and our gas processing capacity by 20%. The Brazos Comanche processing complex has approximately 125 million cubic feet per day of unused capacity, which is crucial as our WES Texas volumes continue to grow and will enable us to optimize the performance of our overall processing complex.

Additionally, there are approximately 3,500 drilling locations at $65 per barrel, nearly all drilling locations on the dedicated acreage are within 2 miles of the low-pressure gathering system, which limits ongoing capital requirements and support strong free cash flow conversion. The systems also provide exposure to additional geologic formations, including the growing Woodford Shale play.

Second, the transaction adds long-term stable contract structures that are foundational to WES' strategy. Brazos Delaware's recently extended contracts have a weighted average remaining contract life of approximately 9.2 years and align with the fee-based framework that underpins WES' cash flow durability.

Third, this acquisition meaningfully diversifies our customer base. Brazos had several new high-quality third-party customers to the WES portfolio. It also deepens our relationships with certain existing third-party customers and further diversifies WES' revenue stream and reduces producer concentration risk.

Fourth, the transaction is financially attractive and accretive at a $1.6 billion purchase price composed of approximately $800 million of cash and approximately $800 million of less common units, the transaction is valued at approximately 8x 2027 estimated EBITDA declining to approximately 7.5x with the commercialization of available processing capacity and other identified synergies. We expect the transaction to close at the end of the second quarter and it contributed approximately $100 million of incremental adjusted EBITDA in 2026. Further, the transaction is immediately accretive to 2026 distributable cash flow per unit.

Finally, our strong balance sheet made this possible. By financing transaction with a combination of cash and equity, we expect to maintain net leverage of approximately 3x on a pro forma basis throughout 2026, consistent with our conservative leverage philosophy and preserving the flexibility to continue funding our organic growth program and capital return framework.

In summary, Brazos expands our Delaware Basin footprint, add durable fee-based earnings from a diversified set of top-tier customers and is accretive to distributable cash flow on a per unit basis. We look forward to integrating Brazos' assets and team into the WES portfolio and updating you on our progress over the coming quarters.

Turning to our record quarterly results. The Delaware Basin continues to perform exceptionally well. Natural gas throughput in the basin increased 3% sequentially to slightly over 2 million cubic feet per day and we achieved record crude oil and NGL throughput of 272,000 barrels per day, which increased 4% sequentially and 6% year-over-year. Our produced water business achieved record throughput as well, increasing 4% sequentially to approximately 2.8 million barrels per day, primarily driven by the full quarter contribution from the Aris acquisition. This occurred despite higher Waha driven curtailments in the basin, which we expect will persist through the second quarter.

Additionally, relative to our throughput expectations, both the DJ and the Powder River Basin outperformed this quarter. In addition to our throughput performance, we benefited from elevated commodity prices in March, which drove adjusted gross margin outperformance, particularly on excess natural gas liquids volumes and increased skim oil volumes driven by the Aris acquisition. WES' long-term contracts, share the fee-based foundation that defines WES's broader portfolio PAUSE but also provide for meaningful value creation and favorable commodity pricing environments due to the retention of skim oil volumes.

This, combined with our efficiency and successful cost reduction actions has materially improved our operating leverage and the earnings power of WES as reflected in our first quarter results.

With that, I'll turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the first quarter. Danny?

Thank you, Oscar, and good morning, everyone. Our first quarter natural gas throughput increased by 1% on a sequential quarter basis, primarily driven by increased throughput from the Delaware Basin despite curtailments. During the quarter, equity investment volumes declined mostly due to lower throughput at the Mi Vida plant in West Texas. Our crude oil and NGL throughput increased by 3% on a sequential quarter basis, mostly due to increased throughput from the Delaware Basin due to the timing of wells that came to market during the quarter.

Additionally, our produced water throughput increased by 4% on a sequential quarter basis, driven by the full quarterly impact from the Aris acquisition and continued growth in the legacy WES Water business.

Our first quarter per MCF adjusted gross margin for our natural gas assets increased by $0.06 on a sequential quarter basis. This was due to higher overall commodity pricing on excess natural gas liquids volumes under our fixed recovery contracts, specifically in the month of March and decreased revenues in the fourth quarter of 2025 associated with the annual cumulative catch-up adjustment in South Texas. Going forward, we expect our second quarter for Mcf adjusted gross margin to be in line with the first quarter due to elevated commodity pricing.

Additionally, we now expect our average adjusted gross margin to be approximately $1.28 per Mcf in 2026, which implies moderation in the second half relative to the first as our forecast reflects a more normalized commodity pricing environment for the full year average.

Our first quarter per barrel adjusted gross margin for our crude oil and NGLs assets increased by $0.30 compared to the prior quarter, mostly due to the unfavorable revenue recognition cumulative adjustments that recorded in the fourth quarter of 2025 for the DJ Basin in South Texas that did not reoccur in the first quarter. Our first quarter performance was in line with our previous expectations of between [ $3.05 and $3.10 ] per unit that we communicated in our prior earnings call. We expect our second quarter per barrel adjusted gross margin to be slightly higher than the first quarter and for our average adjusted gross margin to still range between $3.10 and $3.15 per barrel for 2026.

Our first quarter per barrel adjusted gross margin for our produced water assets increased by $0.07 due to the full quarter impact from the Aris acquisition and increased skim oil recoveries at higher commodity pricing. Going forward, we now expect our second quarter per barrel adjusted gross margin to average approximately $0.93 and for our adjusted gross margin to average approximately $0.91 for the year, especially at the current crude oil strip for 2026 is realized.

Turning our attention to the remainder of the year, we continue to expect our portfolio-wide average year-over-year throughput to remain relatively flat for natural gas, declined low to mid-single digits for crude oil and NGLs and increase by approximately 80% per produced water. We still expect average year-over-year throughput in the Delaware Basin to increase by low to mid-single digits for natural gas. But with the first quarter crude oil outperformance, we now expect crude oil to remain relatively flat in 2026 compared to 2025. Despite higher crude oil prices since mid-March, we are still witnessing certain customers curtail throughput in the Delaware Basin due to stubbornly low and sometimes negative Waha natural gas pricing.

We expect Waha pricing to remain volatile throughout the second quarter as maintenances performed downstream of our operations and the basin waits for the next tranche of basin takeaway capacity to come into service in the third and fourth quarters of this year.

In the DJ Basin throughput outperformed in the first quarter due to the timing of wells that came to market. This outperformance slightly improves our full year expectations for both natural gas and crude oil and NGL throughput and while we still expect the overall number of wells that come to market to decline this year, we now expect mid-single-digit declines on average year-over-year versus mid to high single-digit declines we expected initially. Additionally, the first pad in Occidental's broncho cap development began flowing in late April. And by our next quarterly call, we should have further clarity regarding 2026 throughput expectations.

In the Powder River Basin, we continue to expect throughput to decline on average by approximately 10% to 15% year-over-year. We continue to have discussions with our producing customers in the basin and we still expect higher activity levels in 2027 as more rigs return to the basin. Additionally, one of our largest producers in the Powder River Basin recently informed us they would accelerate activity levels in the back half of 2026 in order to increase volumes earlier in 2027.

Finally, softness in Rocky Mountain natural gas pricing over the past several months has driven some curtailments in deferred completions. That said, we still expect throughput growth of mid-single digits from our other natural gas assets driven by full year's contribution from Williams Mountain West Pipeline expansion, the tie-in of Kinder Morgan's Ultima pipeline into our Chipita processing plant in Utah in 2025 and steady throughput levels at our [ Persada ] plant in South Texas.

With that, I'll turn our call over to Kristen to discuss our financial performance during the quarter.

Thank you, Danny, and good morning, everyone. During the first quarter, we generated net income attributable to limited partners of $342 million, record adjusted EBITDA of $683 million and distributable cash flow of $509 million. Relative to the fourth quarter of 2025, our adjusted gross margin increased by $56 million, which was primarily driven by a full quarter's contribution from the Aris acquisition, higher commodity pricing on excess natural gas liquids and increased skim oil volumes and $30 million of unfavorable noncash revenue recognition cumulative adjustments recorded in the fourth quarter associated with redetermined cost of service rates on certain contracts of South Texas and in the DJ Basin, which did not reoccur in the first quarter.

Our operation and maintenance expense increased approximately 5% quarter-over-quarter, mostly driven by the full quarter contribution from the Aris acquisition. Inclusive of the legacy Aris assets, we still expect our operation and maintenance expense to increase by only approximately 10% to 15%, which represents a meaningful reduction on a combined company basis as we continue to see success in our cost reduction efforts.

As is typical with our business, we expect operation and maintenance expense to increase slightly in the second and third quarters, primarily due to increased asset maintenance and repair work and higher utility costs. As a reminder, we are reimbursed for approximately 65% of our utility costs portfolio-wide from our producing customers.

Turning to cash flow. Our first quarter cash flow from operating activities totaled $470 million, a decrease of $88 million relative to the fourth quarter of 2025. Primarily driven by the Delaware Basin natural gas gathering contract renegotiation with Occidental that became effective on January 1 and included the redemption of $610 million of WES units held by Oxy.

Our operating cash flow resulted in $242 million of free cash flow generation and free cash flow after our fourth quarter 2025 distribution that was paid on February 16 was a use of cash of $137 million.

Turning to the balance sheet. We ended the quarter with more than $2.5 billion in total liquidity and a trailing 12-month net leverage ratio of approximately 3.1x. In early April, we retired $441 million of 4.65% senior notes due in 2026 with proceeds from the senior notes issued in the fourth quarter of 2025. On April 20, we declared a quarterly distribution of $0.93 per unit, which was in line with our prior commentary of 2.2% increase over the prior quarter's distribution. Our first quarter distribution will be paid on May 15 to unitholders of record as of May 1.

Turning to guidance. WES is well positioned with strong fee-based contract structures that provide protective cash flows throughout the commodity pricing cycles. As Oscar previously mentioned, we now expect our results to be towards the high end of our previously announced adjusted EBITDA guidance range of $2.5 billion to $2.7 billion and distributable cash flow guidance range of $1.85 billion to $2.05 billion before taking the Brazos transaction into account. This is due to new commercial discussions, the favorable commodity price environment and our improving operating leverage related to our continued cost competitiveness efforts.

Additionally, we continue to expect our free cash flow to range between $900 million and $1.1 billion. We still expect our 2026 capital expenditures to range between $850 million to $1 billion. Approximately half of the 2026 capital spending is directed towards the construction of the Pathfinder produced water pipeline and associated systems and the North Loving 2, both of which are still expected to come online in the first and second quarters of 2027, respectively.

Turning to the distribution. The first quarter distribution of $0.93 per unit or $3.72 annualized keeps us on track towards our full year guidance of at least $3.70 per unit, which includes distributions paid within calendar year 2026. We remain focused on growing adjusted EBITDA mid- to low single digits and growing the distribution at a rate slightly less than that in order to increase distribution coverage over time.

With that, I will now turn the call back over to Oscar for closing remarks.

Thanks, Kristen. Before we open it up for Q&A, I wanted to leave you with a few key takeaways. First, we have a growth strategy that provides WES several ways to win. We have a consistent track record of throughput and adjusted EBITDA growth, coupled with strong cash flow generation. Our combination of strategic bolt-on acquisitions and high returning organic growth projects, including the Pathfinder pipeline and North Loving 2 provides multiple pathways to grow.

Focusing on 2026, we are well on our way towards achieving our targeted 5% to 9% adjusted EBITDA growth rate before taking into account any benefit from the Brazos acquisition. Looking further ahead, produced water beneficial reuse, behind-the-meter power generation and CO2-related services represent meaningful optionality that our team continues to develop.

Second, we operate in the best basins in the country. We are a leading 3-stream provider in the Delaware Basin, the most prolific basin in North America with a differentiated and growing position in New Mexico following the Aris acquisition. Additionally, favorable gas oil ratios and rising produced water rates in the Delaware Basin will support throughput growth for years to come.

Our DJ Basin assets continue to generate substantial free cash flow and our expanded Powder River Basin position provides additional upside, all of which is underpinned by our long-term fixed fee contracts supported by minimum volume commitments and substantial acreage dedications that deliver durable cycle resilient cash flows.

Third, the Brazos acquisition is a natural extension of our strategy to sequence our Delaware Basin footprint and a longtime Pathfinder in North Loving 2 further solidifies WES as one of the largest gatherers and processors in the basin.

Finally, WES offers one of the most compelling return profiles in the midstream sector. 12% to 14% potential annual equity return is underpinned by an almost 9% current cash yield and a 4% to 5% long-term adjusted EBITDA annual growth that drives further upside. Additionally, our investment-grade balance sheet continues to provide support for our capital allocation decisions, and we remain committed to maintaining net leverage of approximately 3x, growing the distribution over time while increasing our distribution coverage and preserving our peer-leading total capital return.

In closing, WES is operating from a position of strength. Aris is fully integrated. We expect the Brazos acquisition to close in the second quarter and 2 large organic growth projects are well underway. Our successful track record from the Meritage and Aris integrations to the successful construction of Mentone III and North Loving I gives me great confidence in our team's ability to execute and create incremental value for our unitholders in the quarters ahead.

We've had a very strong start to 2026, and I look forward to updating you in the second quarter on our progress on our organic growth projects and our initiatives to continue to enhance our cost competitiveness and returns.

Finally, I want to thank the entire Western Midstream workforce for their hard work and dedication to our partnership. With that, we'll open the call for questions.

[Operator Instructions] And our first question comes from the line of Keith Stanley with Wolfe Research.

Congrats on the deal. I wanted to look forward a little bit. So the company acquired Aris in October, you're acquiring Brazos in June. As you look forward, how do you think about the organizational capability to continue to pursue incremental deals over the next year as you digest these 2? And relatedly, you've talked in the past about interest in scaling up in New Mexico to integrate with Aris. Is that something that's still of interest?

Yes. Thanks a lot, Keith. This is Oscar. Yes. So in terms of our capacity, we've completed the integration of Aris, so we're confident we can shift our focus now once we close Brazos Delaware to the integration of that asset. That one will be much similar as opposed to 250-plus people, a corporate entity, public company acquisition that Aris was, which we executed really, really well on. Brazos is more of an asset deal, we'll only have sort of 60 to 70 [indiscernible] come over, most of them field based and so it should be a pretty straightforward integration that we can execute quite quickly.

We have a lot of confidence in the team. That said, I think there's a fairness to comment that we need to sort of face sort of our acquisition sort of opportunities. As you know, a lot of this we can't control timing of often. We like the programmatic M&A strategy. We like sort of base transactions that we can sort of handle efficiently. And so we'll continue to look for those, but we'll be cautious on [indiscernible] we talked about it a lot as a leadership team about what our broader organization can handle and what pace we can move.

As you know, we're also executing a couple of major growth projects for that on our mind as well. So again, I think we'll be measured we'll fit to our strategy on M&A and our discipline. And we'll just be cautious with what the team can hand up. But so far, really excellent execution on Aris and I think we're going to do a great job. And we like our counterparty here the Brazos teams, a great team. I think will be super helpful in that transition as well.

Second question, I wanted to pick up, I think you mentioned in the concluding remarks and the slides referenced potential growth in behind-the-meter power generation and CO2 services as part of the growth strategy. Can you elaborate a little on what you're looking at there and how near term these opportunities could be?

I think on -- we established a new ventures business group about a year ago to really focus on longer-term adjacencies to our core competencies in our footprint where we could add value and ensure we find a way to participate in sort of megatrends going on today. So we made a lot of progress there. Certainly, the near-term opportunities exist on the produced water and beneficial reuse side. So we'll be talking more next quarter about where we are. We've commissioned a tenfold upsizing to our pilot plant with the [indiscernible] plants right on the Texas, New Mexico border. And that's happening kind of literally as we speak. And we're confident we'll get to commercial plant operations very soon.

So that one we're very excited about. We think we can supply water to all sorts of industrial offsets to freshwater sources that should be preserved for humans. And that's everything from power bank cooling, data centers, [indiscernible], you name it. So it's a big opportunity. It will take years to build out. But that's the 1 we're on the [indiscernible] to the commerciality.

On the CO2 side, I think there's a lot of options there certainly right down the fairway of what we can manage in terms of planned pressures, pipelines, compression, et cetera. I think that it's longer term, I believe. We're particularly excited about the potential for CO2 shale enhanced oil recovery. We talked before about a number of our big customers who've been working on those projects. We always think there's potential to support CO2 sequestration and other assets because, again, that just comes down to pipelines in pressure compression. And so those are things we do really well.

Behind Union Power, what we found as we move to the market is while we have the skill set, handle electricity all the time and you have people that have built power facilities [indiscernible] itself hasn't built a major power plant project, and we'd like to do that where we can find the economic returns that could come in a number of forms in ways that people talked about across the industry already supporting all the build-out in terms of power needs that everybody is talking about. But also given the state of the grid in West Texas, I think there's an opportunity there for sort of [indiscernible] our own power generation for our own baseload and some of our key partners as well.

So that's probably a little bit behind more data on beneficial reuse, but not too far. So that's -- those are major sort of initiatives. There's other things we're looking at, but those are the key ones. Again, the idea there is we've got a pretty good line of sight to growth over the next couple of years, and we're just building the foundation for that longer-term growth sort of outlook. So we can keep delivering kind of on average over time through cycle, that 4% to 5% enterprise growth that we're looking for.

And our next question comes from the line of Jeremy Tonet with JPMorgan.

This is [indiscernible] on for Jeremy. Just wanted to kind of build on the insight that you've given for the recent acquisition of Brazos and whether you can provide any more clarity on kind of those contributions, the cadence of when they will be realized given the quick turnaround and integration here? And then also just the underlying drivers for that $100 million estimate as well?

Sure. So the numbers that we put in the press release, really just base Brazos Delaware business. So we think we'll get to that kind of forward 7.5x is multiple once we're able to fully commercialize and utilize the [indiscernible] gas processing complex, which you think you can in pretty short order. We do have -- we are utilizing offloads today. And so once we get a hold of the system and sort of connect it up, I think we can utilize that space in a reasonably short order.

There's other opportunities, I think, with the systems integrated around how you all have some field level cost savings and synergies. Those will take a little bit longer. And then in terms of other upside, those are more on the commercial front, again and some operationally, but that will be a little bit sort of further down the road. So I think -- the $100 million is just sort of taking on the asset and taking ownership in sort of the back half of this year. And we expect the upside so that we identify around the synergies over the next kind of 12 months, something like that.

In terms of the speed of integration, it's really due commentary on sort of the continuing nature of the assets just that it's the simple asset transaction. So from a people and systems integration, we should be able to move on that pretty quickly.

That's very helpful. And then not to get too ahead of ourselves, but it looks like you guys have a pretty constructive growth runway here through 2027 with North Loving 2 and Pathfinder coming online then. And PRB producer commentary kind of sounding like it leans into '27 as well and Waha volatility kind of easing by then also. With all of those drivers, would you say that a fair characterization or any other big things here that we're missing?

I think that's fair. I think we just got to keep in mind, but we've got a lot of confidence in the Permian. We keep an eye on the DJ in terms of [ disability ] to grow or decline. And so we've been -- we've gone pretty cautious sort of producer feedback for the next year or so. That said, all that was provided sort of in the January, February time frame, before all the recent events and the changes and shifts in the global commodity markets. So we'll keep an eye on that, in particular, in terms of how that impacts the sort of aggregate portfolio.

In post Brazos, we should be about 65% of our EBITDA, something like that, Delaware Basin. So we've got a lot of confidence there, and it's the biggest contributor to our sort of earnings and cash flow. And then again, with the Aris position in New Mexico and the optionality around both organic and inorganic in that part of the world. Angie, we feel pretty good about the longer-term outlook for growth, particularly, again, for an environment that's anything better than we had originally budgeted around the $57 WTI back in the last quarter time frame.

And our next question comes from the line of Spiro Dounis with Citi.

I want to start with the outlook for 2026. And really just trying to understand a little bit more what's underwriting the current guidance to you that you're going to be towards the high end and acknowledge this is all likely going to change with deal close. But you sort of referenced the current commodity environment. And so just curious, does that current strip just sort of get you to that high end. You also referenced producers leaning in here. And so just curious, if you do get an acceleration in activity midway through the year, apples-to-apples deal notwithstanding, does that sort of maybe put you above?

Yes, I think that's right, Spiro. So when we took a look at Q1 results and just the increase that we saw in the commodity prices for our -- you can really see it come through in the gross margin for MCS and the gross margin per barrel on the gas and the water side, respectively. And so to your point, we're just running up straight out through the remainder of the year, and that's what's really compelling us to be near the high end of guidance for 2026.

There's certainly been just a lot more commercial conversations right now, but nothing that we've gotten from a price that makes us increase our volume through put, our volume expectations yet for 2026. If we do get something we might see in the very last part of 2026, but it will really be more of an impact into 2027 on the volume side. And then obviously, just depending on what happens with dollar pricing as in the year, does that may impact our throughput expectations from a gas perspective as well.

Got it. That's helpful, Kristen. And second question, maybe just going to Pathfinder. I was just hoping for maybe an update where you are in commercializing the remaining open space on that pipeline. Your comments and comments some of your peers are really pointing to an acceleration in activity? And I have to think that water is coming along with that. So just curious, should we expecting -- should we be expecting more activity on the commercial side become months related to Pathfinder?

Yes. Thanks for that. Oscar again. Indeed, I think part of what Kristen was talking about in the increase of our commercial conversations and activity. A big portion of that is around water. The shift in the conversation has been significant over the last even 6 months in terms of particularly the larger independent oil and gas companies and the majors and starting to look at water in the Permian and in particularly the Delaware Basin as a basin-wide sort of challenge to manage, which plays right into our fully integrated New Mexico, Texas system was basically a header system right at the middle in terms of pathfinder pipeline.

So I think from our original vision, which was more asset specific to putting volumes directly, contracting that on the Pathfinder, I think we've got a couple of additional ways the Pathfinder can add value which is more, as we've extended our gathering system, the disposal system with the combination. Now we've got the ability to bid on an integrated water paybasis. So we can -- I believe the only ones that kind of today can provide all the current solutions from produced water to recycling, gathering, disposal, long-haul transport, we've got whatever you need, and we can integrate those sort of services as you need.

Again, some of our customers are even becoming very specific and want to understand exactly where we're moving the water and where it will be disposed over some great distances. And again, that plays right into our strength. And we're also the only ones I think that are on the precipice of being able to build commercial future solutions around beneficial use.

So a lot of more conversation, there is still certainly a tendency among producers and it's just true [indiscernible] average service that many of our producers like from all service to midstream, sort of waiting for the last minute and sort of taking advantage of whatever localized disposal options, they still have left. And we'll be here when they're ready to solve their problems. And I think Pathfinder will be a key part of it. So we're really confident in the returns of that asset. We've managed the capital extremely well. It's still on the time line that we've talked about. And we think the returns frankly, are going nowhere with us on that asset.

And our next question comes from the line of Ivan Skoda with UBS Financial.

Congrats on the quarter. Just turning to cost saving optimization efforts. What parts of the business are you seeing these most in? And then what parts of the business do you think there's still more to be done?

Yes. We've seen a lot of great efforts and I might have to any comment to this, too, but on the operations side and our operation and maintenance expense [indiscernible] potentially, it's in every category, whether really taking a deep dive in term in the [indiscernible] program, looking at spans and layers on the people side, the salaries and wages side, contractor spend quite a bit and so bringing the contractors into the business as well. But it's across the board, G&A as well.

I don't [indiscernible] intensity and M&R processes have been the primary driver so far and then we'll be looking at our price book going forward.

Yes. We've seen a lot of efficiencies on the supply chain side and some of our other operating processes where we've been able to revisit zero-base and just sort of optimize those. We're getting more experience and a little bit better in terms of understanding all of our equipment across the plants as well as compression and everything else in terms of, again, that maintenance and repair, timing and where we can stretch without additional risk and that sort of things. And as Kristen said, we'll continue to focus on both those kind of opportunities.

But also on the G&A side, we're looking at a lot of different tools to improve the sort of efficiency, the sort of the corporate side of the house and having people spend more time on some more complex problems, some sort of the day-to-day simple management of [indiscernible] and things over the long term like AI and everything else, but the impacts will be more marginal in our business as we're an asset-heavy intensive business with physical product as opposed to this data, et cetera.

Got it. Super helpful. And then just in terms of growth CapEx, how are you thinking about that number more on a long-term run rate basis?

I think our -- I think I'll answer it this way, are sort of kind of volume when kind of cash flow sustainable capital is still pretty much as we've talked about before in the sort of $400 million to $600 million range, and it's sort of a range because it just depends on the nature of the wells that are brought online for their production and decline initial production and decline curves. So that's the purpose there. So when you think about sort of sustaining capital that's in that zone.

In terms of growth capital from here, I think it will be more like what we're seeing with Pathfinder or North Loving 2 in terms of [indiscernible] good capital range of $4 million to $6 million in sort of a normalized year. If we can find high return organic growth projects, we'll have those chunky pieces and again, as we talked about, we've committed to help industry sort of track those chunky projects away from the more typical [indiscernible] compression and I think that just sort of sustain the cash flow throughput of the business.

In terms of sort of achieving that 4% to 5% sort of consistent growth rate through time, that probably is a higher number of probably approaching $1 billion. But again, that will come in a mix, right, where some of these projects and/or some of these programmatic M&A opportunity. And that's why how we capitalize those. It's really, really important, and we sort of aim for that sort of trifecta of per-unit accretion, keeping the leverage under control, and sort of a natural fit with our business.

This acquisition of Brazos Delaware provides a pretty significant sort of free cash flow post financing costs sort of adder to our distribution coverage, which is something that we're pretty excited about. So we'll continue to -- whether that's organic or inorganic, look to deploy capital that way. So again, it won't be straight line year-over-year as we're seeing, we kind of grew 6% last year. We're now looking at more like 5% to 9% this year. Next year will be something different, potentially higher with all the other with Brazos combined with sort of the environment and the other activity we talked about. So I hope that helps. It's a little bit of a -- it's hard to say just because there's a lot of different projects that we could pursue. And some of that just depends on the timing and how those sort of are able to be commercialized.

And our next question comes from the line of Ned Baramov with Wells Fargo.

Two-part one on the cash flow conversion potential from the Brazos deal. So first, what is a good annual maintenance CapEx run rate for these assets? And second, how are you thinking about feeling of the $125 million of available capacity? Will this require additional capital to connect to your current system and redirect some of these current outloads? Or are you looking for producers to gradually grow into this capacity as they ramp up there production?

Yes. So on the first part, on your EBITDA cash conversion, for Brazos, Delaware has been pretty high the last few years, sort of in that 90-plus percent range. We hope to maintain that. The incremental capital to connect the systems is pretty minimal. If you look at the map, again, it's especially the part that connects the [indiscernible] gas processing complex, it's all right there. So that part is pretty minimal. We also believe, again, that we hold the Brazos Midstream team in high regard and believe they've done a great job with this asset. And so we don't believe there's sort of as much of a typical private equity to public corporate capital catch-up that you often see and we certainly saw in the Meritage transaction. So we're more confident on that front.

So it seems like this one is probably -- again, this just we'll refine this by the second quarter, but probably in something like $20 million on average kind of maintenance capital kind of range. And again, there's capacity both on the system. And as you point out, in the processing plant, which means there shouldn't be a lot of big chunky capital going forward in the next couple of years for that asset.

As I mentioned before, we're currently utilizing offloads, a number of offloads with third-party gas processing companies to support our existing gas volumes and our maintenance turnarounds, et cetera. So in terms of where that volume can come from, we can do a lot of work just by utilizing and taking those volumes that we've been off flowing onto the system. But we also anticipate the gas throughput rate in the Brazos assets themselves. So pretty soon, we're going to fill that. It doesn't [indiscernible] better for worse, does it really move our mindset of position [indiscernible] in terms of [indiscernible] comes online. We're going to have that plan pretty full reasonably quickly as well by kind of middle of next year. And again, given the geographies, I think there's some logic to that as well.

I like the 90-plus conversion rate there. And then I guess, part of your solid performance in the first quarter was driven by strong commodity prices in March, resulting in higher contributions from excess NGLs and also skim oil from your water operations. I guess, with commodity prices remaining elevated here into the second quarter. Could you talk about volume trends for these excess NGLs and skim oil. I presume weather could impact excess NGL volumes while skim oil volumes could vary based on how producers handle the water volumes before handing off to WES?

Yes, I think you're right about that. I mean, we are expecting our water volumes to take up just a little bit in second quarter relative to first quarter. So to your point, what coming with that will be a little bit of increased skim oil. And it does vary [indiscernible]. It does vary how much skim oil we're getting in that flow. So -- but I do expect and it's part of what we were mentioning on the call around our Q2 expectations for gross margin per barrel and the gross margin for McF and that to be incorporated in our second quarter results.

On the recovery side, yes, NGL expect the same there, too. It will just flow along with the expectations there. We do have some turnarounds that we've been working specifically in the second quarter. So we've been utilizing some of our offloads a little bit more. So all that kind of just plays into where we think we'll fall from a gross margin for NCS for second quarter 2. But definitely, as we're seeing increased commodity prices for April, May, June, that will be dialed into those equity [indiscernible].

And our final question comes from the line of Elvira Scotto with RBC Capital Markets.

So as you see sort of the Delaware Basin growing as a percent of EBITDA. You talked about the DJ Basin as a cash generator and the PRB, you could see some growth there. But can you talk about some of the other natural gas assets that you have and the strategic importance of those assets? Or could those be assets that could be monetized at some point?

[indiscernible] Danny mentioned in his script, we've got a lot of capacity in [indiscernible] processing plants, and you see with the [indiscernible] Billing Connections upside there. And there's certainly been a lot more activity among the customers and the broader Uinta basin. So we like that asset. South Texas has been great to us and been an important part of our history, and we're working very hard with our customer there to improve what we have for the JV and the JV kind of structure there. So we're continuing to try to improve that asset as well.

And again, we've had a long history going all the way back to the Anadarko days in Southwest Wyoming. So we have -- we do have still a couple of other minority interests in long-haul pipes that are -- we monetize sort of the lines where we thought we were misaligned with our partners there, and we've kept the ones where we see continued sort of good performance and good partnership.

So we're pretty happy with what we have now. And I think the way to think about any potential divestitures for us is as hard as an MLP to the best assets as I think has been around for a long time. But we certainly would need a place to redeploy the capital at higher returns and that sort of thing almost immediately to sort of make that work. So it's something that we look at. We always review sort of our portfolio and how everything fits, but it's not something that we spend a terrible amount of time on in terms of reviewing. We don't need the capital today, our balance sheet is in really, really good shape and as we do sort of these chunky organic projects or some of the programmatic M&A, we'll continue to stay disciplined on the balance sheet there, too. So not an urgent priority.

Okay. And then just a little bit on capital allocation. Can you talk about some of the programmatic M&A versus organic growth opportunities. And then with M&A, what are some of these areas you'd like to fill? I think you've talked about New Mexico. You're seeing some opportunities there? And then also related to capital allocation, it looks like once we purchased 15 -- a little over 15 million units from Oxy in the quarter. Can you talk a little bit about that? And do you expect to continue some of these opportunistic buybacks?

Yes, certainly. So on capital allocation front, our sort of methodology is unchanged for a number of years and in a sort of go-forward case, it's very similar. In terms of where we see potential on the organic side, we'll continue to build out processing over time in the Permian Basin for sure, given where GORs are going and [indiscernible] basin and a lot of, I think, in-basin gas use. So we need to see the gas side of the business is very positive in the Permian.

We do hope to build out additional gas assets, one way or another in New Mexico for sure to complement our Aris footprint that they may not require us getting into [indiscernible] gas, which is again something our operating team has experience in. Probably, you'll see over the next couple of years, some capital allocated to some of these new venture projects in particular, on water beneficial reuse and potentially on the power side. But again, those will have to sort of adhere to our sort of target returns that are the same for gas oil, water or anything else. So those would be sort of returns and project specific.

So really, not too much change. We -- there's potential, I think, to deploy incremental capital for sure and the powder. And I think in terms of the DJ, honestly, it really depends on how sort of the regulatory and political environment evolves there. It's a fabulous basin with a lot of oil still in place. We think the state is moderating some, but given their power needs and their 30% of their base load is coal, but it's hard to predict. So that is truly a human outcome in the DJ in terms of whether we would deploy material additional capital in that part of the world. And I'm sorry, I've lost the last part of the question. [indiscernible]

That was actually an integral part of the contract renegotiation of our Delaware [indiscernible] legacy gas contract with Oxy. So as part of sort of all the adjustments around that contract, the economic trade-off with that to rebalance that contract was they contributed those units to WES so that we retire those units as part of the economics of the overall trade.

Okay. Great. Just if I can sneak one more in. I know you have North Loving 2 coming on and there's some incremental capacity from Brazos. But if you think about processing expansions going forward, how are you managing the supply chain? And I'm specifically thinking about compression where lead times have stretched to over 150 weeks [indiscernible]?

I mean, I can talk about it briefly, but when it comes to compressing deliverability relative to cryo units or other processing capacity, it seems to be the electrical equipment and the cryo units in [indiscernible] not compression to drive it. And so it's just being on top of forecasting for those 2 long-lead components to be able to have it. And then we maintaining kind of relationships and orders, our supply chain group is a good job making sure that we have spots in line that we have options for so that we can be nimble when it comes to needing compression.

Yes. We -- I mean, we constantly review our processing stack and monitor the outlook of our producing customers and where we think [indiscernible] are going in particular and that sort of thing. So, yes, that's why in looking at having North Loving 2 underway, but also sort of the benefit of the Brazos processing capacity, we have a lot of confidence in that and visibility. You'll recall, we slightly modified our approach to thinking about our stack and how we build out compression gas processing capacity in terms of where we really believe we kind have understood our customers and sort of their habits as well as their geology and what they're looking at going forward. We leaned in a little bit on North Loving 2 versus what we had done in the past, which was more of build up an entire gas processing plant, so to speak, of offloads, customer-driven away from turnaround, [indiscernible] build it. And by that time, you were sort of a couple of years behind the market.

So again, we have incredible confidence in the Permian for the very long term. And so we just want to make sure we're not overspending, but we're managing sort of the multiyear outlook for process side. That does tie into the [indiscernible] supply chain in terms of when we want to sanction or maybe order long lead time item equipment. But to Danny's point, where we had more trouble more specific equipment around electrical and not really the core of the plant itself.

There are no further questions at this time. Mr. Oscar Brown, I will turn the call back over to you.

Thank you, and thank you to everyone for your interest in Western Midstream and participation on this call. Our unique portfolio, investment-grade balance sheet and our scale gives us multiple ways to win in the near term as a midstream leader in natural gas, crude oil and produce water across some of the best basins in the United States. Add to that over the long term, our emerging Water beneficiaries business and strong potential new ventures in the high-titer power generation of CO2 related services and additional other business lines closing to our core natural gas business. So stay tuned, I really think we're going to have a lot to talk about, and we look forward to speaking with you again on our next earnings call in August, and we'll see many of you at the investor and industry conferences in between. With that, we'll close the call. Thanks again, everyone.

Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.

Good morning, and welcome to Western Midstream's Fourth Quarter 2025 fireside chat with our Chief Financial Officer and Senior Vice President, Kristen Shults.

Kristen, can you give us an overview of our fourth quarter and full year 2025 performance?

Yes, Daniel. So if you take a look at fourth quarter, our Q4 adjusted EBITDA came out to $636 million. However, that included the negative revenue recognition adjustments of close to $30 million. So without that adjustment, we would have been right around $665 million for Q4. From a throughput perspective, our gas decreased just a little bit, oil slight decrease and then water obviously went up as we integrated the Aris assets.

On the gas side, we've talked a lot about negative prices at WAHA, and we saw some of that come through a little bit in Q4 as some of our private producers curtailed some of their volumes onto the system. For full year 2025, though, we finished above the midpoint of guidance at $2.48 billion. Our CapEx was right in line with guidance at $722 million, which included CapEx related to the Aris assets, too. And our free cash flow was above the high end of guidance as well at $1.53 billion.

Distributions in line with the guidance that we gave, and we saw throughput increase across all 3 products in the portfolio. Very good performance out of the DJ, great performance out of the Delaware Basin in particular. So a really strong year in 2025 and seeing some of the cost-cutting efforts that we implemented in the second quarter of 2025 come through when you're looking at adjusted EBITDA and then specifically OpEx. We also were successful in deploying our organic and inorganic growth strategies that we have. We sanctioned Pathfinder in 2025. We sanctioned North Loving II in 2025. And then finally, we completed the acquisition of Aris, which is making us one of the largest water solution providers in the Delaware Basin.

WES has been talking a lot about efficiency initiatives and cost saving strategies over the past few quarters. Can you give us an update on the progress the company has made in 2025 and the partnership plans for 2026?

Yes. So for WES, really proud of the efforts of all of our employees over the past year. As I mentioned previously, during the second quarter of 2025, we implemented a program here focused on cost cutting and really just zero basing the activities that we do, making sure we make them as simple as possible and reducing cost overall in the portfolio, whether that was our operations and maintenance cost or our general and administrative cost.

We even did some work on the capital side, zero basing certain designs that we have and making them more efficient and more cost competitive. So if you look at our third quarter 2025 O&M relative to third quarter 2024 O&M, you'll see that decreased by 8% year-over-year. Then if we look at fourth quarter compared to 2024 relative to 2025, you'll see another decrease of 12% year-over-year if we exclude Aris. So you're really seeing those cost-cutting efforts actually come to fruition. And that's with increasing utility costs on top of it.

So really proud of the team there. You're going to see that continue into 2026 as well. In fact, when we look at O&M year-over-year, we're obviously including a full year of Aris in that compared to 2024, and we still expect O&M to only be up about 10% to 15%, which is significantly below what the 2 stand-alone companies would have been on a pro forma basis.

From a G&A perspective, once you exclude the Aris cost that we had, transaction costs in the fourth quarter, G&A is relatively flat in '25 compared to 2024, and we expect the exact same thing in 2026. In fact, we kept really the growth functions within Aris. So the commercial function and the beneficial reuse function, we're putting more money towards beneficial reuse in 2026, and we're still keeping G&A flat, which is just showing how the legacy business is continuing to cut cost out of that overhead as well.

Turning to 2026, can you give us an overview of the 2026 guidance WES published?

So adjusted EBITDA guidance range is $2.5 billion to $2.7 billion. That represents a growth of approximately 5% at the midpoint. We use our producers' forecast to come up with our throughput expectations for the year. And so what we saw really in the last few months of the year and into the beginning of this year has been a pullback in some of those forecasts. We're expecting declines in activity in the Powder River and the DJ. We talked about that last year some, but I think that's a little bit more pronounced than originally thought.

And then also have some changes in activity within the Delaware Basin, too. And so it's impacting that throughput that we were expecting for 2026. However, it's still in line with all the messaging that we had around wanting to grow adjusted EBITDA by that mid-single digits rate. Additionally, the offset there is capital. So previously said, we thought we would be at least $1.1 billion. Our midpoint is now $925 million. And so you can really see that as a GMP, we're able to push and pull on the capital side of things in order to help manage free cash flow when we are getting a little bit more of a volatile environment.

From a distribution perspective, we're expecting at least $3.70 per unit. That includes an increase of $0.91 per unit to $0.93 per unit that we expect to recommend to the Board starting with the first quarter distribution. So it's a little bit over 2% on distribution increase, which is also in line with our messaging around mid- to low single-digit increase in the distribution. We have talked a lot about coverage and wanting to increase coverage naturally over time. And so as we're growing adjusted EBITDA by 5%, and we're trailing that distribution right around 2%, it will help with that natural growth of distribution coverage.

With lower activity levels tied to updated producer forecast, do you see a change in strategy at WES?

No, we're not expecting to change our strategy. If you look at what we did in 2025 from a growth perspective, both organic and inorganic, we expect to use the same playbook in 2026 and beyond in order to continue to grow the business. We've kept leverage low for a reason. It allows us to go out and go after these growth opportunities, and it allows us to make sure that our distribution is safe and in check as well.

So no change to the strategy, no change to any of the prior messaging around adjusted EBITDA growth or distribution growth. That's all still intact. In fact, I think if you take a look at our guidance for 2026, what it shows is that we've put the business into a great place over the years. And as we do see a little bit of a downturn or from producers' forecast, what is expected to be a downturn in 2026, we're able to ride through that with no issues at all.

So we saw that you're guiding to distributable cash flow. Is free cash flow still an important metric for WES?

Yes. Free cash flow is still a very important metric for us. It is very much in our discussions and our strategy decision-making here. We've talked about free cash flow in the prepared remarks during the earnings call, said that would be roughly between $900 million and $1.1 billion, inclusive of what is a deliberately heavy capital year with sizable growth projects embedded in it.

We agree that free cash flow is a critical metric. We look at it when we're thinking about capital allocation decisions just like leverage. In fact, our leverage is one of the lowest in all of the peer group. And so if you look at our DCF calculation that we do, it gives you a clean view of what it would cost us to really keep the business just running in a true downturn type of situation. This is exactly what DCF is supposed to be doing, and we're going to provide both metrics just to provide more transparency to people.

But they're both important metrics, both of which we look at, both of which we think through when we're talking about capital allocation. Also, as previously mentioned, we're focused on increasing the distribution coverage. And so when we look at 2026, the same actions that we took in '25 around organic, inorganic growth, continued cost discipline and cost cutting, those are all going to be the same type of actions you're going to be seeing from us in 2026.

Kristen, thank you for joining us today. For our listeners, if you have any additional questions, please feel free to reach out to us. Our contact information is located in the Investor Relations section of our corporate website at westernmidstream.com.

And I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you. I'm glad you could join us today for Western Midstream's Fourth Quarter 2025 Conference Call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today. Relevant reference materials are posted on our website.

I'm pleased to inform you that the Western Midstream Partners K1 will be available via our website beginning Wednesday, March 11, Hard copies will be mailed out the following week.

With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer.

I will now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. 2025 was another incredibly successful and strategically meaningful year for Western Midstream that can be defined by record adjusted EBITDA and free cash flow generation primarily driven by throughput growth across all products and from the Delaware and DJ Basins while focusing on cost competitiveness to support our long-term growth plans.

Throughout the year, the Delaware and DJ Basin set multiple quarterly throughput records, enabling West to meet or exceed our annual throughput expectations and full year financial guidance ranges. Additionally, the Aris acquisition in late 2025 further enhanced our asset base by expanding our produced water solutions capabilities and establishing a more substantial presence in New Mexico.

Taken together, our 2025 achievements, including successful organic growth projects, accretive M&A, efficiency gains and cost reduction successes as well as contract renegotiations, all strength in operating leverage and position us for sustainable growth while maintaining a strong balance sheet and low leverage profile as we progress later into 2025 and now into 2026 macroeconomic and commodity price-driven volatility have increased.

Kris to provide more details on our 2026 guidance metrics shortly, but based on recent discussions with our producing customers and taking into account their updated forecast, it has become clear that many of our producers will reduce previously expected activity levels on acreage that we service, including portions of the Delaware Basin. This, in combination with lower adjusted gross margin per unit for our natural gas assets, driven by changes in contract mix and lower commodity prices are expected to result in more moderate rates of growth for overall throughput and adjusted EBITDA in 2026 relative to our initial expectations.

While we had already anticipated and communicated lower activity levels and declining production in the DJ and Powder River Basins, Oxy has recently reallocated a portion of their activity from acreage that we service in the Delaware Basin. Based on Oxy's most recent forecast, we expect a portion of that activity to begin returning to our acreage starting in 2027, although scenarios are still being evaluated and will continue to maintain flexibility. This activity shift moderates our expected 2026 throughput growth in the Delaware Basin relative to earlier expectations, and we now expect partnership-wide natural gas throughput to be flat in crude-oil and NGL throughput to decline by low to mid-single digits on average year-over-year.

With that said, our long-term outlook of mid- to low single-digit adjusted EBITDA growth remains intact as evident by our 6% adjusted EBITDA growth reported in 2025 and our expectation of 5% adjusted EBITDA growth in 2026 at the midpoint of our guidance range.

We remain confident in our producers' long-term development plans, especially when you consider the fact that the majority of undrilled inventory within Oxy's Delaware Basin portfolio remains located on acreage that we service. While 2026 is proving to be more of a transition year than we initially anticipated, our business remains underpinned by stable long-term contract structures, many of which include minimum volume commitments that support financial stability and a lower activity environment.

As you can see from the reduction in our 2026 capital expenditure program from at least $1.1 billion in prior communications, to $925 million at the midpoint of our updated guidance range, we are able to modify our capital program to align our spending with revised producer activity levels. In short, our long-term growth strategy is unchanged. The Aris acquisition will contribute meaningfully to adjusted EBITDA in 2026 and by issuing equity for a portion of the Aris consideration, we preserve the financial flexibility necessary to continue pursuing value-accretive opportunities and commercially creative solutions such as the restructuring of our Oxy Delaware Basin natural gas gathering contract in exchange for WES units.

Additionally, our cost reduction initiatives are making less a leaner, more efficient organization positioning us to better compete for new business and to benefit from operational leverage when activity levels recover, especially considering extremely bullish, power-driven natural gas demand fundamentals expected in the coming years.

Returning to our recent accomplishments and focusing specifically on the fourth quarter, we generated record adjusted EBITDA of $636 million, even after $29.5 million of negative noncash cumulative revenue recognition instruments. Excluding these adjustments, we would have recorded adjusted EBITDA of $665 million, representing an approximate 5% sequential quarter increase. Our fourth quarter performance was primarily driven by increased crude-oil and NGL throughput in the Delaware Basin, the contribution of [indiscernible] produced water volumes from the Aris acquisition and reduced operation and maintenance expense from legacy WES assets, which excludes the impact of Aris.

The Delaware Basin remained our primary growth engine during the quarter, with crude oil and NGL was rebounding as more wells came online and produced water volumes increased driven by the Aris acquisition. However, this was mostly offset by lower natural gas volumes in the Delaware Basin, largely due to third-party curtailments tied to low Waha hub pricing throughout the quarter as well as expected volume declines in the Powder River Basin and lower crude oil and NGL volumes in the DJ Basin. Waha Hub pricing remains a persistent industry-wide challenge, affecting producers and midstream providers. While WES' direct commodity price exposure to Waha is limited, some of our third-party producers are more directly tied to Waha [indiscernible], which led to throughput curtailments throughout the fourth quarter. These curtailments have continued intermittently in the first quarter of this year and near-term Waha pricing remains volatile.

We expect continued pricing pressure through at least the first half of 2026, which will likely impact Delaware Basin natural gas throughput over the next 2 quarters. However, we expect new egress coming into service in the second half of the year to begin alleviating some of this pricing pressure. With that said, our marketing team is actively working with our producing customers to identify more diversified near-term pricing exposure to maintain economic production as well as to secure longer-term solutions, including long-haul capacity to the Gulf Coast.

For full year 2025, throughput increased across all 3 products and was driven by throughput records in both Delaware and DJ Basins which resulted in some of the highest levels of adjusted EBITDA and free cash flow in our partnership's history. Other key operational and financial milestones include the sanctioning of the Pathfinder pipeline and the execution of long to produce water gathering and disposal agreements. The completion of North Loving Train 1, which brought online ahead of schedule and under budget in the first quarter and expanded our West Texas complex processing capacity by 250 million cubic per day to approximately 2.2 billion cubic feet per day.

The sanctioning of North Loving Train 2, which is still expected to commence operations early in the second quarter of 2027, the acquisition of Aris Water Solutions, which materially increased our produced water solutions capabilities established a more substantial presence in New Mexico and provided a much stronger foothold in the produced water gathering and disposal, recycling and treating for beneficial use businesses, a 4% year-over-year increase in the distribution, which allowed West to maintain a strong capital return profile and leading total capital return yield and maintaining our strong balance sheet with net leverage around 3x throughout 2025, and including the financing of the Aris acquisition.

Focusing specifically on the Aris acquisition, integration has progressed exceptionally well and is ahead of schedule and mostly complete. The acquisition has strengthened our commercial organization expanded our capabilities and increased direct engagement from our producing customers now that the platform has been fully brought a WeS umbrella. WES now is one of the largest and most integrated water firms in the Delaware Basin with the ability to provide all of today's water solutions, including freshwater recycling,, gathering, long-haul expectation and disposal as well leading position in the emerging beneficial reuse treatment technology business.

We have also achieved $40 million of targeted cost synergies and approximately 85% of those savings should be realized by the end of the first quarter, with the remainder by year-end 2026 as legacy contract and license terms expire. To date, we have completed several major integration milestones, including the full consolidation of EE and purchasing systems, the consolidation of operations and project management systems, vendor contract harmonization, and the complete integration of IT and HR systems, which includes the migration to WES' payroll and benefit plans.

I would like to extend my sincere appreciation to all teams across both West and Aris. This was an extremely complex undertaking and our teams rose to the challenge with tremendous professionalism and dedication. In addition to the successful integration of Aris and the associated cost savings, we made substantial process in acting process efficiency improvements across the organization under our multiyear cost reduction initiatives.

Kristen will provide more details later, but when excluding the Aris acquisition impact, we achieved 3 consecutive quarters of declining operations and maintenance expense in 2025. In fact, when excluding mostly reimbursable utility costs and the Aris acquisition impact, operations and maintenance expense decreased by more than $100 million when annualizing the first quarter of 2025 relative to the fourth quarter of 2025. Additionally, excluding acquisition-related expenses and noncash equity-based compensation, 2025 general and administrative expense would have been flat year-over-year even after strategically retaining select personnel and functions from Aris like beneficial use in commercial operations and taking routine annual compensation growth into account.

Our engineering and construction team has also reevaluated certain facility designs, which will lower a portion of our expansion capital outlay in 2026 and beyond. This demonstrates the continued commitment from all teams to lower costs while pursuing our growth mandate and maintaining operational excellence. You will continue to see the benefits of our cost reduction efforts throughout this year as our teams fully execute on already identified initiatives and is the next set of opportunities.

As the legacy WES and Aris operations, engineering and construction teams continue to integrate, we expect to unlock additional efficiencies beyond the previously communicated $40 million of targeted synergies. The teams have already identified several incremental opportunities across both produced water systems, and we will continue evaluating and prioritizing these throughout the first half of 2026.

With that, I'll turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the fourth quarter.

Thank you, Oscar, and good morning, everyone. Our fourth quarter natural gas throughput decreased by 4% on a sequential quarter basis as a result of lower volumes from the Delaware Basin due to certain customers curtailing volumes in response to low Waha Hub pricing and lower volumes from the Powder Basin. These decreases were partially offset by record throughput from the DJ Basin.

Our fourth quarter crude oil and NGLs throughput decreased slightly on a sequential quarter basis, primarily due to decreased throughput from the DJ Basin, which was mostly offset by increased through from the Delaware Basin as the expected wells came online in the fourth quarter. Fourth quarter produced water throughput increased 121% on a sequential quarter basis as a result of 2.5 months contribution from the Aris acquisition.

Our fourth quarter per MCF adjusted gross margin for our natural gas assets decreased by $0.01 compared to the prior quarter, mostly due to contract mix associated with Delaware Basin volumes and lower overall throughput from the basin. Going forward, we expect our first quarter per Mcf adjusted gross margin to decline modestly, and we now expect our average natural gas adjusted gross margin to be approximately $1.22 per Mcf in 2026 driven mostly by a change in contract mix in the Delaware Basin and lower overall commodity pricing.

Our fourth quarter per barrel adjusted gross margin for our crude oil and NGL assets decreased by $0.33 compared to the prior quarter mostly due to an unfavorable revenue recognition, cumulative adjustment recorded in the fourth quarter associated with lower cost of service rates at our DJ Basin oil system and South Texas system.

Going forward, we expect our quarter per barrel adjusted gross margin to range between $3.05 and $3.10. And and our average crude oil and NGLs addressed gross margin to range between $3.10 and $3.15 per barrel in 2026. Our fourth quarter per barrel adjusted gross margin for our produced water assets decreased $0.11 compared to the prior quarter, driven by 2.5 months contribution from the Aris acquisition. We expect our first quarter per barrel adjusted gross margin to increase slightly and our average produced water adjusted gross margin to be approximately $0.85 per barrel in 2026 due to increased throughput expectations and associated contract mix.

Turning to our full year results. For the second consecutive year, average throughput across all 3 products increased year-over-year, adjusting for the sale of several non-assets that closed in the first half of 2024. For full year 2025, natural throughput averaged 5.2 billion cubic feet per day, representing a 4% year-over-year increase, in line with our expectations of mid-single-digit growth. For full year 2025, crude oil and NGL throughput averaged 514,000 barrels per day, representing a 1% year-over-year increase in line with our expectations of low single digits growth.

Full year 2025 produced water throughput averaged 1.6 million barrels per day, an increase of 40% compared to full year 2024, driven by 2.5 months contribution from the Aris acquisition. Produced water throughput from WES's legacy assets averaged 1.2 million barrels per day, representing a 7% year-over-year increase and in line with our original expectations of mid-single digits growth.

Turning our attention to 2026. We expect that most of our throughput growth will occur in the Delaware Basin and will be driven by the Aris acquisition. As Oscar discussed, due to lower overall customer activity levels across our asset base, we now expect our growth rates for crude oil and NGLs and natural gas in the Delaware Basin to moderate to low to mid-single-digit average year-over-year growth in 2026. Overall throughput decreases in the DJ and Powder River basins are now expected to result in portfolio-wide average crude oil and NGLs throughput to decline by low to mid-single digits and tnat gas throughput to remain relatively flat year-over-year.

For produced water, we estimate that the throughput will increase by over 80% year-over-year, driven by the Aris acquisition. More specifically in the Delaware Basin, even though we expect the number of rigs to decline year-over-year and the resulting number of wells that we expect to come to market to decrease by a little more than 1/3. We still anticipate throughput growth, mostly due to drilling efficiencies that continue to be achieved by reducing customers. As we mentioned on our third quarter call, we expect a more challenging environment in the DJ Basin that should result in average year-over-year throughput declining for both natural gas and crude oil and NGLs in the mid- to high single digits range as we expect the overall number of wells that come to market to decline.

With that said, we expect natural gas throughput to be supported by steady onload activity from Phillips 66. We also expect Oxy's broncho cap development to offset basin-wide crude oil and NGLs throughput declines with volumes that are expected to come to market in the second quarter of 2026. Once we begin to see results from the initial reduction of the Bronco cap, we will be in a better position to provide a clearer view of year-over-year trends in the basin in 2026 relative to 2025.

Also, as previously discussed, we expect average year-over-year throughput for natural gas in the Powder River Basin to decline in the range end of 15% based on the most recent producer forecast. The Powder River Basin tends to be more commodity price sensitive with several of our producing customers have indicated the return of rigs to the basin in 2027. We will remain in close contact with our producing customers and continue to monitoring the commodity price environment before making any decisions to allocate additional growth capital back into the Powder River Basin.

Finally, we expect average natural gas throughput for our other assets to increase in the mid-single digits range year-over-year. This is mostly due to a full year's contribution from Williams Mountain West Pipeline expansion, the tie-in of Kinder Morgan's Altamont pipeline into our Chipeta processing plant in Utah in early 2025 and steady through levels at our Brasada plant in South Texas.

With that, I will turn the call over to Kristen to discuss our financial performance during the quarter.

Thank you, Danny, and good morning, everyone. During the fourth quarter, we generated net income attributable to limited partners of $187 million and adjusted EBITDA of $636 million. Our net income was negatively impacted by $120 million of transaction costs to the Aris acquisition that were added back to adjusted EBITDA for comparability purposes and due to the onetime nature of those costs.

Relative to the third quarter, our adjusted gross margin increased by $60 million. This was primarily driven by the incremental gross margin contributed from the Aris acquisition, which was partially offset by the recording of approximately $30 million of unfavorable noncash revenue recognition cumulative adjustments associated with redetermined cost of service rates on certain contracts associated with our assets in South Texas and at our DJ Basin oil system. In fact, without these fourth quarter adjustments, we would have recorded adjusted EBITDA of $665 million, a 5% increase relative to the prior quarter.

Our operation and maintenance expense increased by $40 million or 19% sequentially, which was primarily driven by the inclusion of 2.5 months of Aris. When excluding Aris, our fourth quarter operation and maintenance expense decreased by 12% compared to the fourth quarter of the prior year, and our full year operation and maintenance expense decreased by 2% on average year-over-year demonstrating the success of our cost reduction plan that we commenced in the second quarter of 2025, in fact, excluding Aris and utility costs, the majority of which are reimbursed through producer contracts. Operating and maintenance expense decreased by more than $100 million from the first quarter to the fourth quarter of 2025 based on the difference between the first and fourth quarter annualized run rates.

As we transition into 2026, we estimate further year-over-year reductions in operation and maintenance expense related to our legacy asset base, acknowledging the normal seasonality we typically see in quarterly spend. Going forward and including the full year's contribution from Aris, we expect our operation maintenance expense to increase by approximately 10% to 15% on average year-over-year. This is significantly below the combined company's pro forma operation and maintenance expense, reflecting the realization of identified cost reductions and additional efficiencies we continue to capture.

On a reported basis, our general and administrative expense increased quarter-over-quarter, primarily due to transaction costs associated with the Aris acquisition. When excluding those costs, the modest quarterly increase mostly pertain to higher personnel costs. Excluding acquisition-related costs, 2025 cash G&A expense would have been approximately $235 million, essentially flat compared to 2024 even after taking into account the increased size of the business and strategically retaining select personnel and functions from Aris like beneficial reuse and commercial operations.

Going forward, we expect our 2026 cash, general and administrative expense to again remain flat year-over-year due to continued cost reduction initiatives, even after accounting for a full year of the retained functions from Aris and accounting for routine compensation increases.

Turning to cash flow. Our fourth quarter cash flow from operating activities totaled $558 million, generating free cash flow of $341 million. Free flow after our third quarter 2025 distribution payment in November was a use of cash of approximately $39 million. Distributable cash flow in the fourth quarter was approximately $527 million compared to $547 million in the prior quarter. In January, we declared a distribution of $0.91 per unit, which is consistent with our prior quarter distribution that was paid on February 14 to unitholders of record as of February 3.

Turning to our full year results. We recorded $1.15 billion of net income attributable to limited partners generating record adjusted EBITDA of $2.48 billion, exceeding the midpoint of our 2025 adjusted EBITDA guidance range of $2.35 billion to $2.55 billion. Our record adjusted EBITDA performance was primarily driven by increased throughput across all 3 products, several quarters of record throughput from the Delaware and DJ Basins, successful cost reduction initiatives, and 2.5 months of contribution from the ARRIS acquisition in the fourth quarter. This growth positioned WES to deliver record cash flow from operations of approximately $2.22 billion in 2025.

Our capital expenditures totaled $722 million, within our 2025 guidance range of $625 million to $775 million and consisted of capital largely associated with the construction of both North Loving Train 1 and 2 and a pathfinder produced water pipeline and associated systems and other expansion projects to support the growing needs of our customers, primarily in the Delaware Basin and in our other core operating basins, but to a lesser extent.

We also generated free cash flow that totaled $1.53 billion in 2025, exceeding the high end of our guidance range of $1.275 billion to $1.475 billion. This was primarily driven by our strong adjusted EBITDA performance, diligent working capital management and capital expenditures coming closer to the midpoint of the guidance range, less than our most recent expectations from the third quarter.

Finally, WES declared distributions that totaled $3.64 per unit for 2025, including our recent fourth quarter distribution of $0.91 per unit. Distributions paid within calendar year 2025 were in line with our full year distribution guidance of $3.61 per unit.

Turning to our 2026 financial guidance and taking producer forecast into account, we expect our adjusted EBITDA to range between $2.5 billion to $2.7 billion for the year, implying a midpoint of $2.6 billion, which represents growth of approximately 5% year-on-year at the midpoint. We expect that the Delaware Basin will remain the primary driver of throughput growth, especially considering a full year's contribution from the Aris acquisition and will help offset expected throughput declines in the DJ and Powder Basin. Our range also includes continued cost reduction initiatives and first quarter winter storm impacts of approximately $10 million to $20 million. We now expect our 2026 capital expenditures to range between $850 million and $1 billion, implying a midpoint of $925 million, which is significantly less than our previous estimate from the third quarter of at least billion.

Due to the shift in commodity price environment and recent changes in producers' forecasts, we have remained disciplined and reduced our expansion-oriented capital expectations for the year. Approximately half of our expected 2026 capital program is directed towards the construction of the Pathfinder produced water pipeline and associated systems and North Loving 2, both of which are still expected to come online in the first and second quarters of 2027, respectively. Our actions also demonstrate our ability to materially reduce the remainder of our expansion-oriented capital expenditure program when needed, thereby limiting the impact on free cash flow.

As we enter a year with elevated expansion capital spending, we are also providing distributable cash flow or DCF guidance, which we expect will range between $1.85 billion to $2.05 billion in 2026, implying a midpoint of $1.95 billion. On a per unit base, we expect DCF to range between $4.59 and $5.08 per unit. While we continue to believe that free cash flow is a meaningful indicator of the partnership's financial strength, DCF also provides investors with an additional measure of our capacity to fund the distribution and a substantial portion of our expansion capital program. such, we will continue to provide both metrics going forward, and we estimate that our 2026 free cash flow will range between $900 million and $1.1 billion, implying a midpoint of $1 billion.

Turning to the distribution. We intend to recommend a distribution increase $0.02 per unit starting with our first quarter distribution to be paid in May. And as such, we are guiding to a full year distribution of at least $3.70 per unit which includes distributions to be paid within calendar year 2026. This represents an approximate 3% increase compared to our prior year annual distribution of at least $3.61 per unit and the distribution increase will equate to approximately $3.72 on an annualized basis.

Going forward, we will continue to target mid- to low single-digit annual percentage adjusted EBITDA growth but will most likely pursue a rate of growth slightly less for the distribution in order to increase distribution coverage naturally over time.

With that, I will now turn the call over to Oscar for closing comments.

Thanks, Kristen. In closing, our 2025 achievements, which included organic growth, accretive M&A, meaningful efficiency gains and cost reductions and constructive contract renegotiations, all strengthened our operating leverage and reinforce the durability of our business. Our performance reflects the strength and resilience of our diversified asset base, the dedication of our teams the execution of our strategic growth plan and our commitment to disciplined capital allocation and operational excellence. Despite near-term activity shifts, our long-term strategy of mid- to low single-digit growth remains firmly intact supported by producers' development plans and the depth of undrilled inventory acreage that we service.

In short, our strategy hasn't changed. The Aris acquisition will meaningfully contribute to 2026 results. Oyou're reduced cost structure will inure to our benefit. Our balance sheet remains a source of strength and issuing equity for a portion of the Aris consideration preserve the flexibility needed to continue pursuing accretive opportunities and creative commercial solutions. With an expanded footprint in New Mexico, we now service some of the most economically attractive acreage in the Delaware Basin, and we will continue to see this base and grow within our portfolio while the DJ Basin continues to generate strong free cash flow.

Additionally, as natural gas demand rises, particularly to meet growing power generation and LNG demand, we expect to call on natural gas production from basins beyond the Permian and Haynesville which should result in increased capital allocation and throughput growth in the Powder River Basin in the years ahead, WES's leading position as the #1 gathering processor in the basin in combination with a large [indiscernible] of undrilled locations all provide a strong foundation for future throughput growth and success. Combined with the progress we have made on cost reductions, WES is a leaner, more resilient organization and is well positioned to capture operational leverage as activity recovers.

With that said, I am confident in our ability to deliver sustainable value for our stakeholders over time, and I look forward to another year of growth and operational success. I would also like to thank the entire WES workforce for all their continued hard work and dedication to our partnership, which enabled us to achieve landmark accomplishments in 2025. I look forward to seeing what we can achieve in 2026 and updating our stakeholders on our progress toward our goals on our first quarter call in May.

With that, we will open the line for questions.

[Operator Instructions] Your first question comes from the line of Gabe Moreen with Mizuho.

Just had a quick question, I guess, in terms of in light of the cost of service restructurings before into water, your balance sheet and where it stands right now, just how you're thinking about M&A and inorganic growth as it stands currently?

Thanks, Gabe. That's a stocking question but I appreciate the query. So I guess, number one, nothing's changed. As I said in our -- in the prepared remarks, our strategy is unchanged and that goes for the way we think about M&A. So again, our capital deployment strategy is clear and it's tight. We only deploy capital, whether it's organic or inorganic to sustain or grow the distribution. We have demonstrated that discipline clearly last year. It is unchanged going forward. So I'm a little annoyed that people seem to be questioning that a little bit by virtue of what's happening in the marketplace. .

But second, the way we think about M&A again is really our preference is bolt-on M&A where we have opportunities for synergies. So fits with our assets, our geographies. We have some way a reason and competency for owning the asset. So that's unchanged. We -- and especially as a relatively new CEO, I guess, some kind of popular. We have had -- I've met every CEO, private and public in this space. I'm pretty sure I haven't missed anybody. Somebody wants to buy me coffee and tell their story. They're welcome to do it. We'll listen, so we have an obvious strategy in terms of how we intend to grow the business.

I hope you'll agree with the Aris acquisition, we did it in a very disciplined fashion. We took a little brief for issuing equity in that transaction given it was a bolt-on. But if you look at the big picture of the last 16 months, I hope you can see it all came together. We were able to claw back 15.3 million units of the 26.6 million we issued. Based on the ARRIS transaction relative to the contract renegotiations, it gave us that flexibility. And so we'll continue to execute.

If you step back a year, I'd also say we were super clear on updating and clarifying our strategy and providing for the first time long-term guidance on our growth. We were not NVIDIA. So we're not growing at great rates. We're just trying to post up 5% every year plus or minus over the long term. And I think, hopefully, you can see from how we're setting up 2026, despite a few headwinds from some customers in terms of their drilling outlets this year and so forth. But the model holds we'll be able to deliver something like that again this year.

And then with our organic projects in terms of Pathfinder and North Loving 2, we're setting up for a very strong 2027.

The final comment I'll make on all of this is when you look at how we were setting up for sort of giving you the visibility of sort of that consistent growth rate over time, the 2 big organic projects sets up '27 pretty nicely. Aris really gave us at least a 2, 3-year pretty clear visibility runway of supporting that growth as we believe the water part of the business is going to grow faster than gas. Gas will probably go faster than oil, et cetera. So we've got a pretty good runway. So there's nothing that we need to do to change our strategy. in terms of how we deploy capital, and we're going to consistently continue to be disciplined about it.

And my final comment is we're not going to take this call to be the opportunity to start participating in the selling us of the rumor mill. So I hope that helps. But happy to answer any questions in terms of anything specific about a shift in how we look at the world on the M&A market in general.

Very comprehensive. And maybe if I can just pivot to two follow-ups around, one is Waha. I think you mentioned sort of trying to ameliorate some of the negative pricing impacts. Can you maybe just elaborate a little bit more? And would that also imply down the line that maybe you feel WES needs to participate in some of the egress solutions coming out of the basins for commercial reasons. And then just wondering if I can get an update in terms of further commercialization on Pathfinder with additional third-party interest. .

Yes. No, that's [indiscernible]. Thanks, Gabe. Yes. On the Waha situation, again, I think we're aligned with the market and believing that the egress is coming in the second half and then beyond, should help immensely with sort of at least dampen down some of the volatility of Waha pricing. Again, the majority of our customers, we tend to serve very large and often public integrated oil types and large independents. Most of those folks have found solutions along the way in either bypassing or getting exposure to other pricing hubs, et cetera. So we do have some other companies that do have a direct Waha exposure, and that's where you've seen some of the production sort of the shut-ins and the volatility. We do think -- the Waha solution, if this is it, in the second half is going to be great for everybody in the basin. I think you just tap on uncertainty whether you have exposure there or not.

And then in terms of what we're doing, we've been working with those customers that still have significant exposure coming up with sort of commercial solutions where we can help them commit to downstream solutions where they might not be comforting it themselves if we can aggregate their situation or bundle of services or the right number of customers that WES is willing to sort of support them in commitments in aggregate that maybe they can't do on the road. So we're working on those kind of solutions to help our customers in a near term and ensure whether the egress is enough over the next 5 years, that there's backup plans related to that for our customers.

With respect to Pathfinder. Yes, it's been interesting, right? I think we had a little bit of post Aris, our customers and the conversations we've been having kind of changed a little bit because we just have a much larger footprint and now the complete full array of solutions to what you want to do with your water, whether it's recycling or long-haul transport disposal, whatever. And then in the longer run, right, we're a leader in solving the sort of water treatment and desalinization beneficial use opportunity, which is going to be massive, we think, in the coming years. So that all kind of that dynamic kind of changed the conversation.

And then when you add in Pathfinder, which is the first long haul to beat, which will be the first one to be completed, the dynamic changed. I think what we're seeing here recently is significant take-up in interest in both more integrated solutions, depending on where you are in sort of New Mexico and Texas that may or may not include a long-haul piece of the solution where producers want sort of the water to go is becoming specific, where they want it to dispose of, and we can sort of provide that visibility. And then ultimately just straight of commitments to the pipe whether its customers or even some of our peers [indiscernible] from a capital perspective with the sort of commercial-related transaction that we did late last year, which gave us better access to some of the land opportunities and [indiscernible] the opportunities. It allowed us to sort of adjust sort of the path of Pathfinder and optimize some of our well costs related to that. So the cost of Pathfinder is coming down meaningfully. So even with the MVCs we already have in place, we see the returns on that project going up. But indeed, we're seeing a lot more interest in that pipe than that even the last couple of months.

Your next question comes from the line of Jeremy Tonet with JPMorgan.

Just wanted to dive into the water side, maybe a little bit more, but I was wondering, you talked about for the business low to mid-single-digit EBITDA growth. But if you parse out the water side, what would that look like? .

Probably the lower end, right? So in terms of the -- like that part of the business, long-term growth, I mean, we're going to closely follow just general basin growth given our size and our footprint and we're kind of in the core areas. So barring any sort of producer-specific movement, I would think the long-term growth we sort of combined gas and oil assets as a couple [indiscernible] sort of on average over time. We're going to have cyclicality and all that related to it.

Again, gas will be higher than oil. But we do believe water for at least the next several years, it's going to have a higher growth rate than both those businesses. The wildcard, of course, I think what you're seeing in the general [indiscernible] of the market for infrastructure in the last few weeks is sort of the realization that the gas sold demand is going to be real. And so that may change the dynamic, especially as we have sort of solutions for Waha and things like that. So if gas demand really does pick up meaningfully, there would be a producer of response so you might see gas do a little better than even we think in that sort of blended hydrocarbon throughput growth rate. But water will follow that along as well because you're going to get lots of water with that production too. I don't know if that's your question, but I hope it helps.

That is helpful. And just pivoting here looking at the industry as a whole, we've seen a lot of midstream consolidation over the years here. And I was just wondering, how do you feel WES Sackstop given a lot of competitors have significant scale at this point? Would would it make sense for WES to scale up more to be -- to compete more effectively with larger players? Or do you feel like you're at a good size.

No, I think look, I think we're at excited we can always grow. Given the consolidations on our customers, right? And then the consolidation in the midstream space, scale is going to continue to matter. I mean one reason we're going to continue to be the leader, for example, in the water businesses where in order of magnitude 10x the size of our next meaningful competitor as an enterprise in the business, and it allows us to go after projects that would strain their systems in terms of size that they can't compete with. So there's an analogy across the streams that we compete in, in that. So scale matters for sure.

And I think in price value, it's not we're not going to get bigger just to get bigger. We're going to continue to execute sort of the strategy that we've laid out in terms of our growth. I think where we're constrained, we don't compete. We're a G&P company, so we're not competing in long-haul pipe and the like. So if you think about the kinds of projects that fall naturally in our wheelhouse in terms of gathering systems, new compression gas processing plants. Hopefully, we expand more to the business of CO2, a lot of solution on power at some point, et cetera, beneficial reuse. Even all those projects that will sort of drive our growth just in what is in our competency today are all absolutely manageable at our current size North Loving 2 is a great example, right?

We told everybody last summer that we were leaning in a little bit on that plant. We weren't doing our usual way to build up a portfolio plant size portfolio of offloads then sanction a plant and take 18 months to build it, et cetera, that we had enough view of our customers and sort of our processing stack that we could go ahead and start building that plant. And if we were on-time grade if we're a little early, find a $200 million or $300 million project, which is what most of our projects are in the launch. Even on the water side, the $25 billion enterprise can probably handle if we're a quarter or 2 early on some of those.

Your next question comes from the line of Keith Stanley with Wolfe Research.

First question, now that you've modified the Permian G&P cost of service contract with Oxy. Are there other contracts that you're interested in amending at all in the near term? Or is that not a priority at this point? .

Yes. In terms of -- well, one, we don't have any left. As you recall, something like 8% or 9% of our revenues post that restructuring, our cost of service contracts. So it's pretty small. Ironically, right, the cost of service revenue recognition, noncash adjustment we had this year, $225 million to $29.5 million. When you compare that to $3.8 billion of revenues, it's about proportional sadly. So I think these are -- it would be nice that if those were simplified if we could stand in an economic way. But given it's pretty small now, it's -- and those are -- there was a lot of effort, as you can imagine, for all parties involved. It's not necessarily something that is high on the priority list. Then again, everybody likes to do forecast the last dollar, but these things are pretty small in the grand scheme, and they certainly don't impact sort of the important stuff. So a little bit low on the list.

Got it. And then I wanted to follow up on distribution coverage. So strategic recontracting with Oxy cleaned up contracts and dealt with an overhang but came with an upfront cash flow headwind. And now you're in a bit of a down cycle this year. So how are you thinking about distribution coverage right now? And how would you kind of characterize some of the levers you can use to improve upon your distribution coverage over time?

Yes. No, it's a good point. So I mean we've talked about distribution coverage now for more than a year in terms of our plan to sort of grow our distribution a bit behind our EBITDA growth in particular. So I think the outlook that we're going to recommend to the Board the go-forward outlook with the $0.08 increase, kind of nailed it in a way, right? So we're expecting 5% EBITDA growth this year. On a go-forward basis, sort of run rate to a run rate, it's a bit over a 2% increase. So we got 300 basis points of spread. Normally, we probably wouldn't have that much spread necessarily, but as you say, it's a bit of an uncertain market.

But I think that all of this sort of kind of proves the model works, taken holistically, right? So growth was a little bit lighter than we thought. So our distribution growth, we pulled that back a little bit. We have low leverage. We're in good shape and a lot of confidence for the future so we can continue that forward. But we also, as you noted in your note, we pulled back in response to sort of the activity we pulled back a bit on our capital where we're originally guiding for in excess or at least $1.1 billion. We're now at the midpoint of $925 million. And so it just underscores the flexibility of the model. So again, we're -- the levers you have, of course, are how you're deploying capital, CapEx, et cetera, our success or not on the commercial side in terms of organic growth?

And then if you can supplement that with other kind of growth in organic or otherwise that again, can build up the distribution coverage, which is sustaining the distribution or even better grow the distribution, then we'll do that. So everything we did in 2025 set us up for a resilient model kind of going forward and really sort of was an attempt to give you the visibility that while we might hit a speed bump here and there, that we should be able to deliver this on average sort of kind of mid-single-digit growth rate.

[Operator Instructions] Your next question comes from the line of Wade Suki with Capital One.

Just wondering if you might be able to comment on sort of the [indiscernible] price backdrop here, obviously, but it's set in a lower price environment than where they are today. So maybe if you could help walk us through how that dynamic might play out this year? Do you want to parse it out by basin or operator type, that would be great. .

Maybe I'll let Kristen just sort of reemphasize some of the base outlook in general, but I'd say I agree, right? The budget we've built in responding to are based on customer forecasts that we've got over the last many weeks, it does feel strange because it does feel like at least sentiment at the moment, we're bullish on that. So there could be upside. But if you want to walk through sort of the base in terms of.

Yes. I think -- so when you kind of go basin by basin, PRB is obviously your most commodity price-sensitive basin. We talked in the script about thinking about a natural gas decline there from 10% to 15%. I think some of that just depends on if you see a little bit of a tick up in commodity is, maybe you get a little bit more activity on that acreage, but you'd really see throughput coming in, in the back half or the back even quarter of the year, if that's the case. So DJ Basin, we talked about in the scripts, the decrease there. I think the wildcard in the DJ is as we've discussed previously, Oxy moving into their Bronco cap area. That's a new area for them. And so whether or not actuals look like their expectation, that's what we're using in our forecasting is their expectations of that area. And so we'll just have to see how that plays out. .

In the Delaware Basin, specifically, as we mentioned in the prepared remarks, we've got some producers that are just more Waha price sensitive. And so even if you see an uptick in oil it will really depend on what's going on at Waha and whether or not they curtail volumes not if they push activity more and the privates are really the more wildcard in the Delaware Basin just because they can accelerate or pull back on capital more quickly. So I hope that helps.

No, that's great. Thanks so much, Kristen. Oscar, you mentioned -- you made a couple of comments, I think you tagged a couple of questions ago, maybe in Jeremy's question. But I heard you say something about expanding more into CO2. And I think I heard you also say you will have a solution for Power at some point. I'm wondering if you could maybe elaborate on those 2 comments, if you don't mind.

So a year ago, we set up a new ventures group to make sure we were thinking very long term. So we're trying to make sure, as we talk about addressing the near term, the next several years, in terms of visibility on the growth rate, but recognize the oil and gas business is pretty dynamic. And so we think water is a core piece of that for obvious reasons. We want to make sure we weren't missing other opportunities. So we've definitely been exploring, trying to understand the opportunity set around unconventional EOR if that is something that turns into the kind of the next big thing for shale, so to speak, over the next however many years, are we well positioned to help support and build out that infrastructure.

We often go with our obvious relationship with Oxy, who's a leader in CO2, we've always been very interested in figuring out how we could support them or others in terms of anything related to enhanced oil recovery. So it's something that we know how to handle molecules, internals and dealer pressure and all that stuff. So CO2 would be a clear core competency for us. So we're definitely encouraged by what we're seeing by Oxy and others in the unconventional EOR space and very hopeful that that's something that the big thing in the Permian in coming years and other basins for that matter, so that's that.

On the power side, of course, with all the -- I guess, a couple of things, right, sort of the Permian greatest notoriously unstable. You add in the dynamic around potential for data centers and other polls on Power. We certainly use a lot of power. We share wires with Oxy. We have competency in building transformers and a compressor or the turbine, they're all very similar. So again, we feel like the power sort of build, operate generate business is something that we could certainly participate in. But we're going to -- with all these opportunities, we're going to -- just like with water, we waited for a long time on that to go from our legacy system to building up something new. The commercial models need to move in the direction that makes sense for us in the midstream space and as an MLP.

So to the extent we get commercial contracts that support, again, sustained growth in distribution, the sort of support terms requirements and our business model, we look to participate in things like CO2 power, et cetera and other ventures where, again, it's -- it will be clear to you all that it's right down the fairway of our competencies and we know how to build and operate. But again, that last piece is really important. That commercial aspect that needs to make sense for us before we kind of go chase unicorns in general.

The one place we are leaning in on that's still -- it's a scaling challenge, not a technology scale and a challenge to speak, but scaling as hard as people in the tech business now is a beneficial reuse business, and that's one where given our size, we can certainly have a real impact there and accelerate what Aris was trying to do.

There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you.

I want to thank everybody for their interest. I thank our teams for really a great year in 2025, and we're really looking forward to continuing to deliver consistent results for our investors. So we look forward to seeing folks on our next call and on the Investor in Service. Thanks again.

This concludes today's conference call. You may now disconnect.

Good morning, and welcome to Western Midstream's fireside chat. My name is Rhianna Disch, Manager of Investor Relations. And with me today are our Chief Executive Officer and President, Oscar Brown and our Chief Financial Officer and Senior Vice President, Kristen Shults.

Oscar, this morning, WES announced new amendments that involve the renegotiation of our contracts in the Delaware Basin with Occidental and ConocoPhillips. Can you give us an overview of these contracts and amendments?

Sure thing, Rhianna. This morning, we announced that we renegotiated natural-gas gathering and processing contracts in the Delaware Basin with a subsidiary of Occidental Petroleum and entered into a new natural-gas gathering and processing arrangement with ConocoPhillips related to a portion of its Delaware Basin natural gas volumes on WES' system. These agreements reset Delaware Basin natural gas fees in exchange for WES common units from Occi thereby encouraging the development of acreage supported by WES' natural gas, crude oil and produced water systems.

The transaction also realigns our equity capital structure to better accommodate changes that we believe will provide long-term strategic benefits to WES. These changes represent a significant step in WES' continuing evolution after becoming a stand-alone midstream enterprise, simplifying our contract portfolio, diversifying our customer base and reinforcing our ability to deliver enduring value for our stakeholders.

There's a lot there. Can we focus first on the changes to the Occi contract? Are there still volumetric protections related to Occi's Delaware Basin natural gas volumes after these amendments?

The amendment to the Occi natural-gas gathering contract effectuates an earlier transition from the legacy cost of service structure to a simplified fixed fee structure than what was previously provided for under that agreement. This transition further positions WES as a stand-alone midstream enterprise and allows the acreage service by WES to better compete for capital within Occi's portfolio.

Additionally, the amended Delaware Basin natural gas gathering contract with Occidental provides volumetric protection via substantial minimum volume commitments through the original cost of service term. From that point forward, the existing acreage dedication and fixed fee structure continues through the duration of the contract. Future throughput risk is mitigated further by the fact that volumes under the Occi gathering contract will remain subject to our natural gas processing contract with Occi, which is also subject to minimum volume commitments through 2035.

And does the new contract with ConocoPhillips for new volumes that will be coming into the WES system?

No, these aren't new volumes. The agreement with ConocoPhillips is for natural-gas gathering and processing related to a portion of ConocoPhillips Delaware Basin wells that are already on our system. However, by entering into an agreement directly with ConocoPhillips, we have further diversified our revenues by reducing related party revenue by more than 10%. We already have a strong relationship with ConocoPhillips, and we look forward to further supporting their development efforts in the Delaware Basin in both Texas and New Mexico.

You also mentioned that these agreements reset Delaware Basin natural gas fees in exchange for WES common units from Occi. Can you provide more details on this aspect of the transaction?

In consideration for these transactions, Occi will transfer to WES approximately 15.3 million WES common units representing approximately $610 million of limited partnership interest in a transaction that was approved by WES' Special Committee of Independent Directors and by the full Board. The transfer was structured on terms intended to represent value neutrality for both WES and Occi for the economic impact of these agreements and the corresponding decrease in WES' operating cash flow over time.

As a result of this redemption and cancellation of these common units, Occi's total ownership interest in WES will decrease from approximately 42% to approximately 40%, which we expect will also provide substantial annual distribution savings of over $56 million per year and growing beginning in 2026.

Kristen, can you give us an overview of the adjusted EBITDA impact of the contract changes?

Sure, Rhianna. The value of the common units transferred approximately $610 million will be added to the contract liability associated with the Occidental Delaware Basin natural gas agreement, which was approximately $560 million before these agreements. The total balance of approximately $1.2 billion will be recognized to revenue beginning in 2026 through 2032. As such, for the next 7 years, approximately $165 million a year on average will be recognized to revenue as the contract liability decreases by the corresponding amount.

Of the $165 million, approximately $90 million relates to the reset of the Delaware Basin natural-gas gathering fees executed in exchange for the common units, the transaction Oscar just discussed. The remaining $75 million relates to the contract liability already recorded on the books. As such, based upon our most recent forecast and including recognition of revenue associated with the contract liability, the conversion to a fixed fee structure is not expected to reduce adjusted EBITDA through 2027. And after 2027 and until 2032, we expect that conversion will have a minimal impact to adjusted EBITDA.

You mentioned revenue recognition and the contract liabilities a few times now. Can you further explain these components?

Since inception, the Occi Delaware Basin natural gas gathering contract has been subject to revenue deferral due to the contract possessing a variable rate or the cost of service aspect of it and a fixed rate within the original primary term of the contract. Under GAAP revenue recognition accounting, revenue is smoothed over the contract's life, even though cash received varies with rate changes. Historically, higher variable fees led to more cash inflow than reported revenue, resulting in a deferral of revenue and the recording of a contract liability on the balance sheet as disclosed in footnote 2 of the financials.

As of the third quarter 2025, contract liabilities amounted to $704 million, of which approximately $540 million related to this contract. The remainder primarily related to aiding construction payments received from customers that are recognized over the expected period of the customer benefit, which is normally 20-plus years. As of December, the contract liability associated with this contract is now $560 million.

With the recent amendment, WES receives upfront consideration the $610 million of units in exchange for an earlier conversion to a fixed rate structure and the effective rate reset over the next 7 years. That amount will increase the contract liability that we have on the books today and will be recognized ratably to revenue beginning in 2026 and through 2032, which is the original term of the contract.

Understood. So while revenues and adjusted EBITDA include the recognition of revenue associated with the contract liability through 2032, operating cash flow will not. Is that correct?

Yes, beginning in 2026, operating cash flows will reflect only the new fixed fee rates, while revenues and adjusted EBITDA will also include the recognition of revenue associated with the contract liability. At the end of 2032, the contract liability should be $0. And at the beginning of 2033, both adjusted EBITDA and operating cash flow associated with the natural-gas gathering contracts will be determined by only the fixed fee rates.

Does this decrease in cash flow associated with these recent transactions change your capital allocation strategy going forward?

No. These transactions have provided us with an opportunistic redemption of units as we received units in exchange for the amendment to reset the fees. The unit redemption amounted to $610 million of present value in exchange for the concession on Occi's fees, while eliminating the associated cash distributions, which would have been approximately $56 million per year at today's distribution rate.

In fact, over the next 10 years, which is now the remaining term of the amended Occi Delaware Basin gas gathering agreement, we expect that the cumulative reduction in operating cash flow from these transactions will largely offset by the cumulative distribution savings and financing cash flows as a result of the common unit redemption. The other uses of capital we continue to evaluate include organic growth funding and building coverage for future distribution growth, all while maintaining leverage at or near 3x, which enables us to pursue other acquisitions and growth.

We're not planning any changes to these objectives as we continue to expect leverage to remain at or near 3x throughout 2026, even taking into account our recent acquisition of Aris Water Solutions and the already announced 2026 growth-oriented capital expenditure program of approximately $1.1 billion. WES has also been successful at reducing costs over the past few quarters.

Do you think WES will continue to be successful reducing costs? And can this offset the reduction in cash flow?

Yes. In 2025, we launched a cost reduction initiative at WES to ensure that every dollar spent supports our strategic objectives. Across the whole organization, employees have been applying zero-based processes and design reviews and eliminating activities that are not aligned with our differentiating capabilities. The results of this hard work began to materialize in our financial results, partially during the second quarter and even more so during the third quarter. In fact, operations and maintenance costs decreased 8% in the third quarter of 2025 compared to the third quarter of 2024. These are permanent cost reductions.

And as we continue to implement changes and identify incremental opportunities, we expect our operating and G&A costs to further decrease. As such, if we take into account the ongoing distribution savings from the common unit redemption, which is approximately $56 million a year at today's distribution rate, together with the cost reduction initiatives, which are only partially reflected in our 2025 results, we expect to fully offset the reduction in free cash flow after distributions resulting from these transactions and the transition to a fixed fee structure.

There's been a lot of conversations over the years about WES' cost of service contracts with Occi, concerns around recontracting risk and rates being lowered as those contracts expire. Any thoughts after this amendment or additional clarity you would like to provide to investors?

The new amendment with Occi creates better alignment between both parties and going forward should materially reduce investor concerns and the overhang associated with perceived recontracting risk. These contract amendments materially reduce the percentage of remaining WES revenue generated by cost of service rates going forward since the Delaware Basin natural-gas gathering contract was previously the most significant cost of service agreement between WES and Occi.

After this amendment, approximately 9% of WES' total revenue will remain subject to cost of service rates with only 1% of total revenue subject to cost of service rates expiring in the late 2020s. The remaining cost of service rate provisions extend into the mid- to late 2030s, include provisions to convert to fixed fee structures at that time. Additionally, all significant fixed fee contracts with Occi, including the contracts being amended, are effective through the mid- to late 2030s. Given these recent contract amendments and the clarity regarding the remaining cost of service rates and other significant contracts with Occi, we believe this provides incremental transparency to our unitholders regarding our contract portfolio.

Terrific. Thank you both for your time. Any closing thoughts, Oscar?

The last year has been a busy year here at WES. From the sanctioning of the Pathfinder Pipeline in North Loving II to the acquisition of Aris, we have successfully set WES up to capitalize on future Delaware Basin growth. We are extremely gratified that we have already begun to see the results of our prudent growth strategy by doing 2 things that are very hard to do at the same time, and that is improve our overall cost structure and process efficiency while executing on growth opportunities. In fact, the former truly enables success in the latter, and we now have great momentum towards improving our competitiveness in the midstream market.

Oscar, Kristen, thank you both for joining us today. For our listeners, if you have any additional questions, please feel free to reach out to us. Our contact information is located in the Investor Relations section of our corporate website at westernmidstream.com.

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

Thank you. I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Thank you. I'm glad you could join us today for Western Midstream's Third Quarter 2025 Conference Call. I'd like to remind you that today's call, the accompanying slide deck in yesterday's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-K and 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward-looking statements we discuss today. Relevant reference materials are posted on our website.

With me today are Oscar Brown, our Chief Executive Officer; Danny Holderman, our Chief Operating Officer; and Kristen Shults, our Chief Financial Officer.

I will now turn the call over to Oscar.

Thank you, Daniel, and good morning, everyone. The third quarter was a strong financial and operational quarter for WES as lower operational costs and our cost reduction initiatives resulted in our second consecutive quarter of record adjusted EBITDA. While adjusted gross margin was relatively flat on a sequential quarter basis, we achieved the highest total natural gas throughput in our partnership's history that was partially driven by another quarter of record natural gas throughput in the Delaware Basin. Strong sequential natural gas, crude oil and NGLs throughput in the DJ Basin, and strong sequential throughput growth from our other assets, specifically at our Chipeta plant in Utah, primarily due to Kinder Morgan's Altamont pipeline connection to our natural gas processing plant in early September. Kristen and Danny will provide additional operational and financial details shortly.

As previously announced, on October 15, we completed the acquisition of Aris Water Solutions, solidifying WES' position as a leading 3-stream midstream flow assurance provider in the Delaware Basin. We are excited to welcome the Aris employees to the West team specifically, as we expand our commercial capabilities and build upon Aris' legacy recycling and beneficial reuse assets and solutions. Teams from both organizations have been working diligently together to ensure a smooth integration process and we are confident in our ability to capture the targeted $40 million of annual run rate synergies.

WES leadership has increased its engagement with federal and state regulators to discuss produced water challenges in the Delaware Basin and articulate how WES is well positioned to address these issues. Combined with the newly acquired Aris assets and team, WES is now a midstream leader in Texas and New Mexico for produced water gathering, transportation, disposal, recycling and beneficial reuse.

Additionally, and subsequent to quarter end, we executed an agreement for incremental disposal capacity to support the Pathfinder pipeline project in the Delaware Basin. This agreement expands WES' access to highly sought after pore space, optimizes the pipeline's planned route and enhances the overall returns of the project.

With that, I will turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance during the third quarter. Danny?

Thank you, Oscar, and good morning, everyone. Our third quarter natural gas throughput increased by 2% on a sequential quarter basis. This was primarily due to increased throughput from our other assets, specifically at our Chipeta plant in Utah and from higher South Texas volumes after second quarter plant turnaround activity [indiscernible] in the third quarter. We also experienced increased throughput from the DJ Basin due to a higher number of wells that came online early in the third quarter.

Our throughput in the Delaware Basin increased slightly on a sequential quarter basis and resulted in another quarterly record even though fewer wells came to market than initially anticipated during the quarter. All of this was partially offset by decreased throughput in the Powder River Basin as previously unloaded volumes subsided at the end of the second quarter.

Our crude oil and NGLs throughput decreased by 4% on a sequential quarter basis, primarily due to decreased throughput from the Delaware Basin, which was partially offset by increased throughput in the DJ Basin. We also experienced decreased throughput from our equity investments. Additionally, our produced water throughput was flat on a sequential quarter basis.

Our third quarter per Mcf adjusted gross margin for natural gas decreased by $0.05 on a sequential quarter basis, primarily due to lower excess natural gas liquids volumes in conjunction with lower overall pricing in the Delaware Basin. This decrease was partially offset by higher throughput in the DJ Basin, which has a higher than average per Mcf margin as compared to our other natural gas assets. Going forward, we expect our fourth quarter per Mcf adjusted gross margin to be slightly lower relative to the third quarter.

Our third quarter per barrel adjusted gross margin for crude oil and NGLs increased by $0.08 on a sequential quarter basis primarily due to increased efficiency fees on certain contracts in the Delaware Basin. We expect our fourth quarter per barrel adjusted gross margin to be in line with our third quarter results.

Our third quarter per barrel adjusted gross margin for produced water was unchanged and in line with our prior expectations coming into the quarter. Our fourth quarter results will contain approximately 2.5 months of contribution from Aris, and we now expect our combined fourth quarter per barrel adjusted gross margin to range between $0.85 and $0.90.

Focusing on the remainder of the year, we continue to expect our portfolio-wide average year-over-year throughput to increase by mid-single digits percentage growth for natural gas and low single digits percentage growth for crude oil and NGLs. For year-over-year comparative purposes, these expectations exclude the volumes associated with the noncore asset sales that closed in early 2024.

Regarding produced water and taking into account 2.5 months of contribution from Aris in the fourth quarter, we now expect our average year-over-year throughput to increase by approximately 40% compared to 2024 levels, which would imply average fourth quarter produced water throughput of approximately 2.6 million to 2.7 million barrels per day. In the Delaware Basin, we now expect low double-digit average year-over-year throughput growth for natural gas and low to mid-single-digit throughput growth for crude oil and NGLs.

During the third quarter, Delaware Basin throughput was relatively in line with our expectations coming into quarter. For fourth quarter, even though we expect natural gas throughput to increase, the rate of growth will be impacted slightly by intermittent volume curtailments due to downstream maintenance at times throughout October. Even though these curtailments will impact the rate of natural gas throughput growth, we expect them to have a minimal impact on our financial performance in the fourth quarter.

And finally, we are forecasting crude oil and NGLs throughput rebounding sequentially due to the timing of wells coming to market.

In the DJ Basin, we continue to expect average year-over-year throughput growth to be flat for natural gas, driven by steady onload activity, and we now expect low to mid-single digits throughput growth for crude oil and NGLs mostly due to the timing of wells that came to market in the third quarter.

In the Powder River Basin, we expect average year-over-year throughput growth to be flat for both natural gas and crude oil and NGLs. During the first half of the year, we benefited from intermittent onloads as other processors in the basin experienced downtime due to asset maintenance or repairs. And as those facilities came back online in June, our throughput declined during the third quarter. Also due to commodity price weakness throughout 2025, we have seen slightly lower customer activity levels resulting in an expected continued decline of natural gas throughput in the fourth quarter.

With that said, we are in close communication with our producing customers, and we are deferring certain expansion projects until incremental activity is seen on the acreage that we service. We also expect increased natural gas throughput from our other assets, specifically in the Uinta Basin during the fourth quarter, primarily driven by the previously referenced tie-in of Kinder Morgan's Altamont pipeline to our Chipeta plant that was completed in early September.

Turning our attention to 2026, we estimate that the Delaware Basin will continue to be the primary engine of throughput growth next year, especially when considering the produced water volumes associated with the Aris acquisition. Additionally, continued throughput growth in the northern portion of the acreage that we service in the Delaware Basin was one of the main drivers behind our decision to sanction North Loving II.

Our continued focus on organic growth and the Aris acquisition are the main reasons why we still expect to grow average year-over-year throughput for all 3 product lines again in 2026. However, in the Powder River Basin, if commodity price weakness continues throughout the rest of 2025, we expect select rig drops or temporary rig relocations to continue into 2026. As such, this will likely result in slightly lower average year-over-year throughput in the PRB for 2026.

Based on lower activity levels in the DJ Basin in 2025 relative to 2024, we anticipate that overall throughput will decline modestly in 2026. However, we currently expect Oxy to start developing the [ Bronco ] cap area in Weld County, Colorado at the beginning of 2026 with volumes slowing into the WES system starting in the first half of the year. Once we have results from the initial production of the [ Bronco ] cap, we will be in a better position to provide a clear view of year-over-year trends in the basin in 2026 relative to 2025.

With that, I will turn the call over to Kristen to discuss our financial performance during the third quarter.

Thank you, Danny, and good morning, everyone. During the third quarter, we generated net income attributable to limited partners of $332 million and adjusted EBITDA of $634 million. Relative to the second quarter, our adjusted gross margin was relatively flat. This was driven by decreased throughput in the Powder River Basin and less gross margin contribution from excess natural gas liquid volumes in combination with lower overall pricing in the Delaware Basin, which was partially offset by increased throughput and gross margin contribution in the DJ Basin.

Our operation and maintenance expense decreased by 5% or $12 million quarter-over-quarter. This was primarily due to less asset maintenance and repair expense and chemical expense quarter-over-quarter. This year, our employees have been keenly focused on company-wide cost reduction initiatives from which we are starting to see incredible results. Even with the increased throughput and higher utility costs in 2025 relative to last year, we expect our operation and maintenance expense and G&A to be relatively flat in 2025 relative to 2024 before considering additional costs resulting from the Aris acquisition. In fact, our operations teams achieved the highest level of asset operability in our partnership's history during the third quarter while still reducing operation and maintenance expense, which is an incredible feat.

For the fourth quarter, while we are expecting to see continued benefits from the cost reduction efforts, we expect operation and maintenance expense and G&A to increase by 20% to 25% relative to the third quarter as we include 2.5 months of Aris activity. While we expect limited synergy capture to impact 2025 adjusted EBITDA, we are confident that we are well on our way towards capturing our target of $40 million of annual run rate cost synergies.

Turning to cash flow. Our third quarter cash flow from operating activities totaled $570 million, generating free cash flow of $397 million. Free cash flow after our second quarter 2025 distribution payment in August was $42 million. In October, we declared a quarterly distribution of $0.91 per unit, which is in line with the prior quarter's distribution and will be paid on November 14 to unitholders of record on October 31.

With the closing of the Aris acquisition in mid-October, we now expect approximately 2.5 months of contribution from Aris to our fourth quarter results, which slightly impacts our 2025 guidance ranges. We now expect WES to be towards the high end of our previously announced 2025 adjusted EBITDA guidance range of $2.35 billion to $2.55 billion, which we estimate will include approximately $45 million to $50 million of adjusted EBITDA from 2.5 months of contribution from the legacy Aris assets. Additionally, we now expect to be above the high end of our 2025 free cash flow guidance range of $1.275 billion to $1.475 billion with incremental free cash flow contribution from the legacy Aris assets.

With regard to capital spending, as we mentioned on the second quarter call, we still expect to be towards the high end of our 2025 guidance range of $625 million to $775 million, which includes initial spending on North Loving II, approximately $20 million attributable to the legacy Aris assets, offset by select deferrals of expansion projects, specifically in the Powder River Basin.

Looking ahead to 2026, we still expect capital expenditures to be at least $1.1 billion. Budgeting process for next year started in earnest in September, and we will continue to evaluate the appropriate amount of expansion capital needed based on producer forecast for both legacy WES assets and for the new Aris assets to support average year-over-year throughput growth across all 3 product lines, again in 2026.

With that, I will now turn the call over to Oscar for closing remarks.

Thanks, Kristen. Before we open it up to Q&A, I would like to emphasize that WES continues to be extremely well positioned to capitalize on our compelling growth opportunities and create long-term value for our unitholders. The acquisition of Aris positions WES as one of the leaders of produced water midstream solutions in the Delaware Basin and creates a strong platform for future growth and expansion.

Based on recent headlines and general industry commentary, the challenges associated with produced water tied to crude oil and natural gas development in the Delaware Basin have become clear. In fact, as we have collaborated with federal and state regulators, the challenges regarding produced water continue to dominate much of the conversations with them.

We believe that it will take an all-of-the-above approach to address the growing volume of produced water on a daily basis from Texas and Mexico. The combination with Aris better positions WES to provide produced water gathering, long-haul transport, disposal, recycling and reuse solutions to address these growing challenges, and we look forward to growing the recycling and various reuse opportunities that the Aris team has started.

Furthermore, we are also excited to see the successful execution and the market is signing significant value to a produced water midstream services public offering in September. The strong market reaction certainly validates the inherent value of WES' sizable legacy produced water asset base and the value captured by our Aris acquisition, and positions the combined entity for meaningful value creation considering our partnership is now one of the leading 3-stream midstream service providers in the Delaware Basin.

Finally, WES' strong balance sheet and investment-grade credit ratings provide the support and financial flexibility necessary to execute on our extensive growth plans. We are well positioned in the Delaware and DJ Basins, and even in a lower commodity price environment, continue to see solid rig activity levels and benefit from strong long-term contracts. Even after taking the Aris acquisition into account and our strong 2026 organic growth plan, which includes capital for both the Pathfinder Pipeline and the North Loving II natural gas processing plant, we still expect leverage to remain at or near 3x throughout 2026, which positions WES for continued growth and to potentially take advantage of market-driven opportunities. By maintaining low net leverage and generating steady amounts of cash flow, our partnership will be able to maintain our disciplined capital allocation framework, gradually increase distribution coverage and steadily generate incremental value for our unitholders over time.

In closing, thank you to all our employees for their hard work and continued dedication to our partnership. The year is not quite over yet, and we have already accomplished a lot. From the sanctioning of the Pathfinder pipeline in North Loving II to the acquisition of Aris, we have successfully set up WES to capitalize on future growth in the Delaware Basin. Additionally, by pairing our disciplined growth initiatives with our successful cost reduction efforts, we have simultaneously accomplished 2 opposing tasks leading to increased stakeholder value and making this one of WES most noteworthy years.

I also want to extend a warm welcome to all of our new formerly Aris employees. We are excited about the opportunities that lie ahead and are confident that our combined team will accomplish a great deal with the expanded produced water business.

Finally, our strong third quarter results put us on track to achieve many of our 2025 goals, and I look forward to updating the market on our progress during our fourth quarter earnings call in late February.

With that, we'll open the call up for questions.

[Operator Instructions] The first question comes from the line of Keith Stanley at Wolfe Research.

I wanted to start on the O&M expense, it's down quite a bit year-over-year. So WES the prior few years has seen pretty big increases in O&M costs. Can you talk to where you are on implementation of the cost management initiative if you think Q3 O&M is pretty sustainable ignoring Aris? And how much more you think you could achieve from here?

It's Oscar. Thanks for the question. We started this effort in March of this year to really focus in on sort of updating our processes, streamlining our efforts and looking for ways to zero base kind of everything we do and think through how we can be more cost competitive so we can support our organic growth and sort of win new business. So the teams have gone through everything at this point. And we still see there's more to do. So what you see in the third quarter here should be sustainable, and we do expect there's more to come.

I'll turn it over to Danny just to give some examples of some of the work that's been done and what we've been able to achieve so far. But we do think this is a new level that we can operate at, and we do think we'll see improvements throughout 2026.

Yes, Keith, This is Danny. Just feeding on what Oscar said. I don't want to represent what I'm going to say as everything is the entire company has been engaged in this. But the key things that you're seeing in Q3 or a lot of efforts by our teams to rationalize our maintenance programs and schedules to look at and rationalize our rental fleets that we may have gotten a bit too bulky when we were focused on bringing our operability up and looking at our contract workforce head count and rationalizing the work processes that they're doing and seeing how we can bring in-house. We also did a fair amount of work debottlenecking facilities, so we could reduce offload costs associated with that, particularly in West Texas. And then our supply chain team has done a tremendous job updating our sourcing strategies and renegotiating contracts to get savings there. So like Oscar said, I think all of what you're seeing now is sustainable, and certainly more to come in those areas and some others to be named as they show up in future quarters.

And I'd just add that all this would occur with, again, record operability. So really been able to run the business aggressively while achieving these cost savings. So we're pretty excited about that. And like I said, I think there's still more work to do, but we've got a great start.

That's great. I appreciate all the color there. My second question, it's a bit of a random one. But in the slides, this is language you've had in there, but I noticed it says low to mid-single-digit distribution growth before potential increases from major projects or M&A. So I just want to confirm, especially with the yield already pretty high. When you complete Pathfinder, which will be a major project or if you do more M&A, are discrete kind of distribution step-ups still on the table with those events?

Yes. It's Oscar. I think they are -- really, our goal was to give long-term guidance on what we think we can achieve through the years, and that sort of mid-single-digit number seems about right, given our size and our footprint right now. We'll just take things as they come. If we've got some opportunities to step up the distribution, we will. It's really the purpose of an MLP at the end of the day, but we are cognizant of the yield, and we talked about it a bit before on sort of balancing out where at some point, if the yield creeps up even higher from here that we'd have to think about buybacks and items like that. It's always going to be comparing against the opportunities we have to deploy capital in a way that's accretive to distributable cash flow.

So nothing's really changed in any of that. We do have to be cognizant, too, of sort of the outlook and the environment. So if we're looking at a flatter year going forward or a slowdown, we'll probably stick with our mid-single-digit growth rate, even if we have some good projects come online, we see an uptick where we think it's sustainable and we bring on some of these projects or make an accretive acquisition, maybe we bump up a little bit from there. It's really at the discretion of the Board, of course. But that's our philosophy on that.

Your next question comes from the line of Gabe Moreen at Mizuho.

Maybe if I can start on the Pathfinder project and some of the assets you made on the additional pore space. Can you just talk about what that does for the projects from an efficiency standpoint relative to the, I think, $400 million to $450 million cost you originally laid out? And then maybe if there's also an update on how third-party contracting may or may not be progressing?

Sure. Thanks, Gabe. So I'll start at the end. On the contracting side, we are progressing well. I think with the Aris acquisition, it did allow us -- took a little bit of pause because we couldn't work in coordination with the Aris' commercial team until we closed. That started now. They've had conversations about growing their system. Of course, we've been working with other producers on Pathfinder itself. So this [indiscernible] based deal did a couple of things, obviously added some more capacity. I think that will just benefit the entire system. Now that we have both New Mexico and Texas, ultimately, those will connect up over time, and we'll have more flexibility and frankly, probably a bit greater ability to grow New Mexico faster than Aris could have done on its own when you combine Pathfinder access and then sort of everything we're doing to expand some of our capacity.

In terms of -- that's why we really brought up this transaction, even though it's sort of not material for the details to be disclosed. It did give us extra pore space and it also allowed us to reroute a small portion of the pipeline to save us some capital. So not ready yet to give the specific numbers, but we do believe with this transaction, we've improved the returns on Pathfinder for the [ SEC ] that we already have in place. And then for future growth on that pipeline.

So with that, I think the only other comment I'd make is just on contracting further on Pathfinder. Now that we've got, again, this combined company, more services and solutions, bigger footprint that I think it will sort of accelerate the dynamic that we'll have with other producers. And finally, we still got about a year, by the way, to get this online. And finally, I'd just say the environment itself has shifted in our favor even though we're just the last 6 months. So in addition to some of the market activity that we commented on in the script, we've seen higher regulatory activity. We've certainly engaged more with regulators. There's probably more regulation coming. But it reminds me of sort of the gas business 20 or 30 years ago, whereas the regulations increased, it really pushed out smaller players, noninvestment-grade players that didn't have sort of the capability to deliver large projects and complete solutions that also comply with increasing regulatory pressure.

So those things have moved in our direction. We've also witnessed now, not just seismicity but communication with producing wells and all kinds of other issues. So it's a real focus of the industry now. And we're also gratified that from a contracting perspective, the contracts you see at Aris in terms of very long-term dedications and then what we've been able to achieve so far, Pathfinder with minimum volume commitments, really it looks, again, a lot like the gas business. So we're pretty happy with the trend, and I think we'll see continued strength in pricing as this becomes a bigger and bigger issue in the Delaware Basin.

Maybe I could follow up. You referenced kind of growing in New Mexico, and I know it's really early days. But as far as ambitions to bring more gas and oil infrastructure, with Aris footprint in New Mexico and kind of get 3 streams going, can you just talk about kind of how you plan to tackle that? Effort's going to be organic, inorganic, both. Just curious to hear your thoughts there.

Yes, we're definitely going to go after both. I think both organic, and if there's opportunities where we can do something accretive, inorganically, we'll look at those, too. That massive footprint that Aris has, that helps a lot, right? So we've already had some strong gas lines going up and gathering pipelines going up into New Mexico, crossing the Stateline, but not in a huge way and not in a big footprint. And so this gives us sort of a big presence in people. And certainly, in water lines where we think we can build off of it.

We've got some confidence because we've been successful on 2 and 3 streams in the Texas Delaware. We think something like 10 contracts in the last 18 months that were at least 2 streams, including water in Texas. So we don't see any reason why we shouldn't be able to achieve that in New Mexico. I do think it will take some time to work through that and sort of win on the organic side. So again, we'll keep the options open, but it's a key piece of the puzzle. And frankly, just about anybody can probably build gas lines since in New Mexico, if you've got sort of the footprint and the capabilities, but solving the water piece is becoming sort of a critical issue and a threshold issue for development. So we feel like that gives us some leverage in the marketplace and sort of the organic growth to New Mexico.

Your next question comes from the line of Jeremy Tonet at JPMorgan.

Just wanted to pick up with some of the points you brought up before as far as opportunistic inorganic deals that you might pursue. Is there any kind of holes in the portfolio you're looking to kind of solve for at this point? Or what are the parameters there is what WES might be interested?

Yes. So the financial parameters are unchanged. So I won't go through those. Those are very consistent over the years and certainly we've kind of validated this year. In terms of opportunities, I think always, where we've got some angle footprint customer with something to build off of and generate some synergies will be our preference. As we talked about, just with the last question, New Mexico is an obvious one where there could be opportunities, we're probably biased a bit towards gas opportunities from this point, given we've really just put together the best position you possibly could in the Delaware Basin on the water side.

In terms of stepping out in other basins, a little bit harder for us if we don't have something to bring, but not impossible with the right sort of significant or stand-alone type business that we think we could leverage into additional growth. But we're staying disciplined. It's been an interesting market from our perspective. There's been a lot of assets out there. We've seen a lot of failed processes. So we'll be helpful as we move through all that. But Jeremy, really not too much has changed in our strategy and where we would go from here.

Got it. That's helpful. And just want to turn towards 2026 a little bit at this point. Outside of the Aris acquisition. Just wondering if you could help us think through how the business is trending for 2026 at this point from what you see?

Yes. So I think from a volumetric standpoint, we touched on this a little bit in the prepared remarks that expecting overall product growth across all 3 products. There has been obviously a little bit of quality price weakness in 2025. And so if we see that continuing through the rest of this year and really into 2026, that will impact some of those basins that are a little bit more commodity priced today, like the PRB and the DJ.

So going back to our prepared remarks around that, too, just expecting at this point, at least some decline there unless we see some commodity price improvement. But Delaware Basin, obviously still doing really well. The acreage we're serving is highly sought-after acreage with a lot of activity on it. The Aris acquisition will be huge. We're doubling the amount of water that we transport and dispose of today. So a lot of growth in that area, too. And then going back to the comments around cost cutting and the initiatives that we've got there, expect there to be savings that we can continue into 2026 and more that we'll continue to find.

Your next question comes from the line of Spiro Dounis at Citi.

I want to start with New Mexico. Just in terms of expanding more there on the gas side, how are you thinking about the AGI component? A lot of your peers have bolstered their AGI capabilities. So just curious if that's a barrier to entry or do you think something you could overcome?

Yes. I think it's a real issue, right? There's a lot of [ sour ] gas in New Mexico. We certainly have the skill set to evaluate those and operate those as well as handle [ sour ] gas. So it's an understood challenge, I guess, operating in New Mexico. It's not -- [indiscernible] not alone in that area. But in any case, there are challenges. They take time to permit, and they are assets that I think provide value. So I think if there's an opportunity for us inorganically there that is heavy on sour gas, of course, we would imagine that would probably come with some of those permits or wells. But if not, we certainly got the skills internally to work through that.

Got it. That's great. Second question, maybe just on to synergies. Oscar, it sounds like you feel pretty confident in that $40 million. But maybe just looking beyond that, you continue to talk about being a 3-stream operator. And I guess I just wonder commercially, when do you think we start to see some of that benefit play out on the commercial side?

Yes, we're certainly having those conversations already. So it's really hard to control. It's kind of like M&A. You've got a counterparty there and a customer that has their own timetables and things that they are focused on. So we'll continue to work those. I don't have sort of a specific time frame. I do think it will take a little time. I mean, for us, on the organic side, we would have to find opportunities where we would -- it's a new area for us. We bring a new build-out sort of situation. So they would just have to mesh with whether it's expiring dedications or new development area or somewhere where our timing could match customers. So that could take a little time.

But we certainly are going to leverage the Aris systems and relationships. We've got some overlap in those relationships to see what we can do on that side. So we haven't, in sort of the 3 stream area, we certainly haven't projected or promised sort of specifics on sort of amount or timetable that we think we're going to be successful there. There's also some likely synergies and opportunities to accelerate growth with the combined Aris and WES team. We've kept all their commercial team to add to ours and really work together to -- just to accelerate the growth on the water side. And again, having something that resembles like a giant gas header system with a beautiful pipeline right in the middle is pretty powerful.

So it shouldn't take an incredibly long time for -- on the water side, the revenue synergies to show up, again, probably not ready to quantify them, but we imagine we see something going next year. And really the last piece, so the $40 million we are extremely confident, and the Aris team has been wonderful. We kind of hit the ground sprinting, not just running with the integration. So that's gone really, really well. But really those -- that $40 million was really all overhead. We also think there's going to be some great opportunities on the operating side for synergies that we can realize probably starting around the first or second quarter. Right now, both teams are sort of operating side by side. And we're just sharing and reviewing how we do business and how we execute every day and pulling best practices for both sides. We are definitely going to take some of the things that Aris has been doing really well and apply that to the rest of our business. We've got some opportunities as well to share practices with them. But the time line on that side, and again, we haven't quantified that it's not part of the $40 million. But we hope to have a reasonable update in February on some of the ideas and opportunities there. So pretty confident we're going to exceed the $40 million. So sort of stay tuned as we [indiscernible] around the business.

There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you.

Thank you so much for your interest in Western Midstream and your participation on this earnings call. We're really gratified that we've really already begun to see the results of our prudent growth strategy by doing 2 things that are very hard to do at the same time, and that's to improve our overall cost structure and process efficiency executing on growth opportunities. In fact, the former enables success in the latter, and we now have great momentum towards improving our competitiveness in the midstream marketplace.

We're quite proud of delivering record operating and financial quarterly results once again, and when combined with the successful closing and integration of Aris as well as our major Pathfinder pipeline and North Loving II gas plant projects set Western Midstream up for delivering predictable growth over the next few years.

I also want to express my gratitude to all our employees for their hard work so far this year in delivering these results while operating safely and sustainably.

We look forward to seeing everybody, analysts and investors, on the road at upcoming conferences through the end of the year. And with that, we'll close the call. Thanks again.

Thank you. This concludes today's conference call. You may now disconnect.