Western Midstream Partners LP executives expect to increase earnings while cutting capital spending but could provide little outlook on the ultimate fate and structure of the partnership now controlled by Occidental Petroleum Corp. following Occidental's $57 billion purchase of previous owner, Anadarko Petroleum Corp.
"We can't speak to [Occidental's] plans as it relates to [Western Midstream]," newly appointed CEO Michael Ure told analysts on Western Midstream's third-quarter earnings conference call on Nov. 5. "We expect to have a very meaningful and long-term relationship with [Occidental]."
In addition to being the owner of the master limited partnership's general partner, Occidental owns 55% of the limited partner units in Western Midstream and is the MLP's largest customer.
"We're also evaluating alternatives that could result in the deconsolidation of [Western Midstream] in the future," Occidental CEO Vicki Hollub told analysts on her company's earnings call earlier on Nov. 5. "We expect to retain a significant economic interest in [Western Midstream] for the foreseeable future as we recognize their tremendous value that [Western Midstream] provides," Hollub said, but provided no details.
Occidental has been busy shedding assets it acquired in the Anadarko deal to reduce the amount of debt it took on.
Western Midstream reported third-quarter adjusted EBITDA of $410.2 million after the market's Nov. 4 close, up 6% from $385.8 million in the year-ago quarter but shy of the $420.5 million the market was expecting, according to S&P Global Market Intelligence's consensus estimate.
Distributable cash flow for the quarter declined 1% to $304.4 million when compared to a year ago, while net income dropped, a drop from $308.3 million in the prior-year period. Net income attributable to the partnership was $121.2 million, down 20% from $151.4 million a year earlier.
The continued uncertainty over Western Midstream's ownership and future, coupled with earnings below expectations, was enough to help push Western Midstream units down 7% to close at $20.80 per unit in twice the normal volume of trades Nov. 5.
Western Midstream executives said the MLP would not be affected by Occidental's plan to cut spending 40% in 2020 as they expected any loss of service in one area, such as gas processing, would be made up in other areas, such as removing produced wastewater. Company executives said they expect to increase EBITDA 10% in 2020 while cutting capital spending 25%.
"Our takeaway is that [Occidental's] volume growth will be in areas where [Western Midstream] operates and at this time there does not appear to be an issue from a cost of service perspective," UBS Securities LLC analyst Shneur Gershuni told his clients before the call. "Given the amount of uncertainty post [Occidental-Anadarko] merger and [Western Midstream's] disappointing update last quarter, we would expect investors to express some relief at the plus-10% guide that was roughly in-line with consensus."
Natural gas throughput increased 6% over the same quarter last year to 4.2 Bcf/d but was 2% below the second quarter of this year, Western Midstream said. Oil, NGL and produced water throughput increased 28% over the third quarter of last year to 1.2 million barrels per day, reflective of the crude boom in the Permian.
"Delaware [Basin, a Permian field] crude, natural gas and water volumes saw significant quarter-over-quarter rebound following uptick in well-connects," analysts at energy investment bank Tudor Pickering Holt & Co. said Nov. 5.
Analysts agreed that the capital Western did spend in 2020 would be used to further align its midstream systems to Occidental's upstream efforts as opposed to Anadarko's old plans for growth.