Western Midstream Partners, LP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, wherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of the 2023 Form 10-K as filed with the SEC on February 21, 2024. The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of March 31, 2024 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made in this Form 10-Q, and may make in other public filings, press releases, and statements by management, forward - looking statements concerning our operations, economic performance, and financial condition. These forward - looking statements include statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” or similar expressions or variations on such expressions. These statements discuss future expectations, contain projections of results of operations or financial condition, or include other “forward - looking” information. Although we and our general partner believe that the expectations reflected in our forward - looking statements are reasonable, neither we nor our general partner can provide any assurance that such expectations will prove correct. These forward - looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: • our ability to pay distributions to our unitholders and the amount of such distributions; • our assumptions about the energy market; • future throughput (including Occidental production) that is gathered or processed by, or transported through, our assets; • our operating results; • competitive conditions; • technology; • the availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, and our ability to access financing through the debt or equity capital markets; • the supply of, demand for, and price of oil, natural gas, NGLs, and related products or services; • commodity - price risks inherent in percent - of - proceeds, percent - of - product, keep - whole, and fixed-recovery processing contracts; • weather and natural disasters; • inflation; • the availability of goods and services; • general economic conditions, internationally, domestically, or in the jurisdictions in which we are doing business; 32 Table of Contents • federal, state, and local laws and state - approved voter ballot initiatives, including those laws or ballot initiatives that limit producers’ hydraulic - fracturing activities or other oil and natural - gas development or operations; • environmental liabilities; • legislative or regulatory changes, including changes affecting our status as a partnership for federal income tax purposes; • changes in the financial or operational condition of Occidental; • the creditworthiness of Occidental or our other counterparties, including financial institutions, operating partners, and other parties; • changes in Occidental’s capital program, corporate strategy, or other desired areas of focus; • our commitments to capital projects; • our ability to access liquidity under the RCF and commercial paper program; • our ability to repay debt; • the resolution of litigation or other disputes; • conflicts of interest among us and our general partner and its related parties, including Occidental, with respect to, among other things, the allocation of capital and operational and administrative costs, and our future business opportunities; • our ability to maintain and/or obtain rights to operate our assets on land owned by third parties; • our ability to acquire assets on acceptable terms from third parties; • non - payment or non - performance of significant customers, including under gathering, processing, transportation, and disposal agreements; • the timing, amount, and terms of future issuances of equity and debt securities; • the outcome of pending and future regulatory, legislative, or other proceedings or investigations, and continued or additional disruptions in operations that may occur as we and our customers comply with any regulatory orders or other state or local changes in laws or regulations; • cyber-attacks or security breaches; and • other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the 2023 Form 10 - K, in our quarterly reports on Form 10 - Q, and in our other public filings and press releases. Risk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward - looking statement. Except as required by law, we undertake no obligation to publicly update or revise any forward - looking statements, whether as a result of new information, future events, or otherwise. 33 Table of Contents EXECUTIVE SUMMARY We are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. In our capacity as a natural - gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and our customers under certain contracts. To provide superior midstream service, we focus on ensuring the reliability and performance of our systems, creating sustainable cost efficiencies, enhancing our safety culture, and protecting the environment. We own or have investments in assets located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), and North - central Pennsylvania. As of March 31, 2024, our assets and investments consisted of the following: Wholly Owned and Operated Operated Interests Non-Operated Interests Equity Interests Gathering systems (1) 18 2 3 1 Treating facilities 38 3 — — Natural - gas processing plants/trains 24 3 — 1 NGLs pipelines 3 — — 4 Natural - gas pipelines 6 — — 1 Crude - oil pipelines 3 1 — 1 _________________________________________________________________________________________ (1) Includes the DBM water systems. Significant financial and operational events during the three months ended March 31, 2024, included the following: • During the first quarter of 2024, we (i) closed on the sale of several equity investments to third parties for combined proceeds of $588.6 million, which included $5.9 million in pro-rata distributions through closing, and (ii) entered into a definitive agreement for the divestment of our 33.75% interest in the Marcellus Interest systems, which closed in April 2024. See Acquisitions and Divestitures within this Item 2 for additional information. • WES Operating purchased and retired $15.1 million of certain of its senior notes via open-market repurchases. • Our first - quarter 2024 per - unit distribution of $0.875 increased $0.300 from the fourth-quarter 2023 per-unit distribution of $0.575. • Natural - gas throughput attributable to WES totaled 4,990 MMcf/d for the three months ended March 31, 2024, representing a 2% increase and a 21% increase compared to the three months ended December 31, 2023, and March 31, 2023, respectively. • Crude - oil and NGLs throughput attributable to WES totaled 565 MBbls/d for the three months ended March 31, 2024, representing a 20% decrease and an 8% decrease compared to the three months ended December 31, 2023, and March 31, 2023, respectively. • Produced - water throughput attributable to WES totaled 1,126 MBbls/d for the three months ended March 31, 2024, representing a 7% increase and an 18% increase compared to the three months ended December 31, 2023, and March 31, 2023, respectively. • Gross margin was $683.7 million for the three months ended March 31, 2024, representing a 5% increase and a 27% increase compared to the three months ended December 31, 2023, and March 31, 2023, respectively. See Reconciliation of Non-GAAP Financial Measures within this Item 2. • Adjusted gross margin for natural - gas assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $1.32 per Mcf for the three months ended March 31, 2024, representing a 2% increase compared to the three months ended December 31, 2023, and March 31, 2023. 34 Table of Contents • Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $2.92 per Bbl for the three months ended March 31, 2024, representing a 20% increase and a 10% increase compared to the three months ended December 31, 2023, and March 31, 2023, respectively. • Adjusted gross margin for produced - water assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $0.95 per Bbl for the three months ended March 31, 2024, representing a 10% increase and a 17% increase compared to the three months ended December 31, 2023, and March 31, 2023, respectively. The following table provides additional information on throughput for the periods presented below: Three Months Ended March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Throughput for natural-gas assets (MMcf/d) Delaware Basin 1,761 1,704 3 % 1,569 12 % DJ Basin 1,372 1,341 2 % 1,306 5 % Powder River Basin 406 369 10 % 33 NM Equity investments 508 489 4 % 423 20 % Other 1,117 1,145 (2) % 915 22 % Total throughput for natural - gas assets 5,164 5,048 2 % 4,246 22 % Throughput for crude-oil and NGLs assets (MBbls/d) Delaware Basin 225 225 — % 205 10 % DJ Basin 87 81 7 % 69 26 % Powder River Basin 23 20 15 % — NM Equity investments 202 347 (42) % 314 (36) % Other 39 42 (7) % 35 11 % Total throughput for crude - oil and NGLs assets 576 715 (19) % 623 (8) % Throughput for produced-water assets (MBbls/d) Delaware Basin 1,149 1,076 7 % 977 18 % Total throughput for produced - water assets 1,149 1,076 7 % 977 18 % _________________________________________________________________________________________ NM — Not meaningful 35 Table of Contents OUTLOOK We expect our business to be affected by the below - described key trends and uncertainties. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results. Impact of producer activity. Our business is primarily driven by the level of production of crude oil and natural gas by producers in our areas of operation. This activity, however, can be impacted negatively by, among other things, commodity-price fluctuations and operational challenges. Fluctuating crude - oil, natural - gas, and NGLs prices can reduce the level of our customers’ activities and change the allocation of capital within their own asset portfolios. Such fluctuations can also impact us directly to the extent we take ownership of and sell certain volumes at the tailgate of our plants for our own account. During 2020, oil and natural - gas prices were negatively impacted by the worldwide macroeconomic downturn that followed the global outbreak of COVID - 19. In 2021, prices began to increase and in the first quarter of 2022, commodity prices increased significantly in connection with the war in Ukraine. For example, the New York Mercantile Exchange (“NYMEX”) West Texas Intermediate crude - oil daily settlement prices during 2023 ranged from a low of $66.74 per barrel in March 2023 to a high of $93.68 per barrel in September 2023, and prices during the three months ended March 31, 2024, ranged from a low of $70.38 per barrel in January 2024 to a high of $83.47 per barrel in March 2024. Similar disruptions could occur as a consequence of the current conflict in the Middle East. The extent and duration of commodity - price volatility, and the associated direct and indirect impact on our business, cannot be predicted. To address the risks posed by fluctuating commodity prices, we intend to continue evaluating the relevant price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility. Additionally, even when the commodity-price environments are favorable, our customers must manage numerous operational challenges, including severe weather disruptions, downstream and produced-water takeaway constraints, seismicity concerns, new regulatory requirements, and the ability to optimize the efficiency and results of large, complex drilling programs. Our producers’ ability to mitigate or manage such challenges can have a significant impact on the volumes available for us to service in the short term. For this reason, we strive to work proactively with our customers whenever possible to provide high levels of reliability on our systems and help them meet these operational challenges as they arise. Impact of inflation and supply-chain disruptions. The U.S. economy has recently experienced significant inflation relative to historical precedent, from, among other things, supply-chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, the COVID-19 crisis and in connection with the war in Ukraine. More specifically, the continued bottlenecks and disruptions have caused difficulties within the U.S. and global supply chains, creating logistical delays along with labor shortages. Continued inflation has raised our costs for steel products, automation components, power supply, labor, materials, fuel, and services, which has increased our operating costs and capital expenditures. Increases in inflationary pressure could materially and negatively impact our financial results. To the extent permitted by regulations and escalation provisions in certain of our existing agreements, we have the ability to recover a portion of increased costs in the form of higher fees. Impact of interest rates. Short- and long-term interest rates can be volatile, resulting in immediate changes to interest expense on RCF borrowings and commercial paper borrowings. Any future increases in interest rates likely will result in additional increases in financing costs. As with other yield-oriented securities, our unit price could be impacted by our implied distribution yield relative to market interest rates. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest-rate environment could have an adverse impact on our unit price and our ability to issue additional equity, or increase the cost of issuing equity, to make acquisitions, to reduce debt, or for other purposes. However, we expect our cost of capital to remain competitive, as our competitors face similar interest-rate dynamics. 36 Table of Contents ACQUISITIONS AND DIVESTITURES Mont Belvieu JV, Whitethorn LLC, Panola, and Saddlehorn. During the first quarter of 2024, we closed on the sale of the following equity investments to third parties: (i) the 25.00% interest in Mont Belvieu JV, (ii) the 20.00% interest in Whitethorn LLC, (iii) the 15.00% interest in Panola, and (iv) the 20.00% interest in Saddlehorn. The combined proceeds received in the first quarter of 2024 of $588.6 million includes $5.9 million in pro-rata distributions through closing, resulting in a net gain on sale of $239.7 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations. The sale of the interests in the Mont Belvieu JV and Whitethorn LLC also resolved outstanding legal proceedings associated with those assets. Marcellus Interest systems. In April 2024, we closed on the sale of our 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million, resulting in an estimated net gain on sale of approximately $65.0 million that will be recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations during the second quarter of 2024. As of March 31, 2024, the Marcellus Interest systems satisfied criteria to be considered held for sale. At March 31, 2024, the consolidated balance sheet included current assets of $6.6 million, long-term assets of $142.7 million, current liabilities of $5.9 million, and long-term liabilities of $2.1 million associated with assets held for sale. Meritage. In October 2023, we closed on the acquisition of Meritage for $885.0 million (subject to certain customary post-closing adjustments) funded with cash, including proceeds from our $600.0 million senior note issuance in September 2023 and borrowings on the RCF. See Note 3—Acquisitions and Divestitures and Note 10—Debt and Interest Expense under Part I, Item 1 of this Form 10-Q. 37 Table of Contents RESULTS OF OPERATIONS OPERATING RESULTS The following tables and discussion present a summary of our results of operations: Three Months Ended thousands March 31, 2024 December 31, 2023 March 31, 2023 Total revenues and other (1) $ 887,729 $ 858,208 $ 733,982 Equity income, net – related parties 32,819 36,120 39,021 Total operating expenses (1) 480,791 495,977 480,673 Gain (loss) on divestiture and other, net 239,617 (6,434) (2,118) Operating income (loss) 679,374 391,917 290,212 Interest expense (94,506) (97,622) (81,670) Gain (loss) on early extinguishment of debt 524 — — Other income (expense), net 2,346 2,862 1,215 Income (loss) before income taxes 587,738 297,157 209,757 Income tax expense (benefit) 1,522 1,405 1,416 Net income (loss) 586,216 295,752 208,341 Net income (loss) attributable to noncontrolling interests 13,386 7,398 4,696 Net income (loss) attributable to Western Midstream Partners, LP (2) $ 572,830 $ 288,354 $ 203,645 _________________________________________________________________________________________ (1) Total revenues and other includes amounts earned from services provided to related parties and from the sale of natural gas, condensate, and NGLs to related parties. Total operating expenses includes amounts charged by related parties for services received. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. (2) For reconciliations to comparable consolidated results of WES Operating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2. For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended March 31, 2024, to the three months ended December 31, 2023, or to the three months ended March 31, 2023, as applicable. 38 Table of Contents Throughput Three Months Ended March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Throughput for natural-gas assets (MMcf/d) Gathering, treating, and transportation 606 516 17 % 369 64 % Processing 4,050 4,043 — % 3,454 17 % Equity investments (1) 508 489 4 % 423 20 % Total throughput 5,164 5,048 2 % 4,246 22 % Throughput attributable to noncontrolling interests (2) 174 172 1 % 139 25 % Total throughput attributable to WES for natural - gas assets 4,990 4,876 2 % 4,107 21 % Throughput for crude-oil and NGLs assets (MBbls/d) Gathering, treating, and transportation 374 368 2 % 309 21 % Equity investments (1) 202 347 (42) % 314 (36) % Total throughput 576 715 (19) % 623 (8) % Throughput attributable to noncontrolling interests (2) 11 13 (15) % 12 (8) % Total throughput attributable to WES for crude - oil and NGLs assets 565 702 (20) % 611 (8) % Throughput for produced-water assets (MBbls/d) Gathering and disposal 1,149 1,076 7 % 977 18 % Throughput attributable to noncontrolling interests (2) 23 22 5 % 20 15 % Total throughput attributable to WES for produced - water assets 1,126 1,054 7 % 957 18 % _________________________________________________________________________________________ (1) Represents our share of average throughput for investments accounted for under the equity method of accounting. (2) Includes (i) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary and (ii) for natural - gas assets, the 25% third - party interest in Chipeta, which collectively represent WES’s noncontrolling interests. Natural-gas assets Total throughput attributable to WES for natural - gas assets increased by 114 MMcf/d compared to the three months ended December 31, 2023, primarily due to (i) higher volumes at the West Texas and DJ Basin complexes due to increased production in the areas, (ii) higher volumes at the Powder River Basin complex due to the Meritage acquisition, and (iii) higher volumes on the Red Bluff Express pipeline due to the addition of a new receipt point into the pipeline. These increases were offset partially by lower volumes at the Granger complex due to a contract expiration in the fourth quarter of 2023. Total throughput attributable to WES for natural - gas assets increased by 883 MMcf/d compared to the three months ended March 31, 2023, primarily due to (i) higher volumes at the Powder River Basin complex due to the Meritage acquisition, (ii) higher volumes at the West Texas and DJ Basin complexes due to increased production in the areas, (iii) higher volumes at the MIGC and Marcellus Interest systems and the Chipeta and Brasada complexes, (iv) higher volumes on the Red Bluff Express pipeline due to the addition of a new receipt point into the pipeline, and (v) higher volumes at the Springfield gas-gathering system due to new third-party production. These increases were offset partially by lower volumes at the Granger complex due to a contract expiration in the fourth quarter of 2023. Crude-oil and NGLs assets Total throughput attributable to WES for crude - oil and NGLs assets decreased by 137 MBbls/d compared to the three months ended December 31, 2023, primarily due to the divestiture of Whitethorn LLC, Mont Belvieu JV, Saddlehorn, and Panola in the first quarter of 2024. 39 Table of Contents Total throughput attributable to WES for crude - oil and NGLs assets decreased by 46 MBbls/d compared to the three months ended March 31, 2023, primarily due to the divestiture of Whitethorn LLC, Mont Belvieu JV, Saddlehorn, and Panola in the first quarter of 2024. These decreases were offset partially by (i) higher volumes on the Thunder Creek NGL pipeline which was acquired as part of the Meritage acquisition and (ii) higher volumes at the DBM and DJ Basin oil systems resulting from increased production in the areas. Produced-water assets Total throughput attributable to WES for produced - water assets increased by 72 MBbls/d and 169 MBbls/d compared to the three months ended December 31, 2023, and March 31, 2023, respectively, due to higher production. Service Revenues Three Months Ended thousands except percentages March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Service revenues – fee based $ 781,262 $ 763,837 2 % $ 647,867 21 % Service revenues – product based 66,740 49,515 35 % 46,810 43 % Total service revenues $ 848,002 $ 813,352 4 % $ 694,677 22 % Service revenues – fee based Service revenues – fee based increased by $17.4 million compared to the three months ended December 31, 2023, primarily due to increases of (i) $16.5 million at the West Texas complex as a result of a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, increased throughput, and increased deficiency fees on certain contracts with increasing throughput minimums, (ii) $13.4 million at the DBM water systems due to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased throughput, (iii) $6.3 million at the Powder River Basin complex as a result of increased throughput attributable to the acquisition of Meritage, and (iv) $5.9 million at the DJ Basin complex due to increased throughput. These increases were offset partially by decreases of (i) $12.6 million at the Springfield system primarily due to an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023, (ii) $7.4 million at the DJ Basin oil system primarily due to an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023, partially offset by increased throughput, and (iii) $2.3 million at the Granger complex primarily due to a contract expiration in the fourth quarter of 2023. Service revenues – fee based increased by $133.4 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $48.9 million at the Powder River Basin complex attributable to the acquisition of Meritage, (ii) $45.8 million at the West Texas complex as a result of increased throughput, a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums, (iii) $26.0 million at the DBM water systems as a result of increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, (iv) $20.4 million at the DJ Basin complex due to increased throughput, and (v) $6.7 million at the DBM oil system as a result of increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024. These increases were offset partially by decreases of (i) $6.6 million at the Brasada complex due to a change in contract terms effective July 1, 2023, (ii) $2.8 million at the DJ Basin oil system primarily due to decreased deficiency fees on demand volumes, partially offset by increased throughput, and (iii) $2.3 million at the Granger complex primarily due to a contract expiration in the fourth quarter of 2023. Service revenues – product based Service revenues – product based increased by $17.2 million compared to the three months ended December 31, 2023, primarily due to increases of $12.4 million at the West Texas complex as a result of increased volumes sold and $2.4 million at the DJ Basin complex due to increased average prices. Service revenues – product based increased by $19.9 million compared to the three months ended March 31, 2023, primarily due to increases of $14.8 million at the West Texas complex primarily due to increased volumes sold and $2.4 million at the DBM water systems due to increased volumes sold and average prices. 40 Table of Contents Product Sales Three Months Ended thousands except percentages and per-unit amounts March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Natural - gas sales $ 3,194 $ 14,213 (78) % $ 2,775 15 % NGLs sales 36,098 30,475 18 % 36,250 — % Total Product sales $ 39,292 $ 44,688 (12) % $ 39,025 1 % Per - unit gross average sales price: Natural gas (per Mcf) $ 1.25 $ 1.63 (23) % $ 1.75 (29) % NGLs (per Bbl) 30.93 31.62 (2) % 28.78 7 % Natural-gas sales Natural - gas sales decreased by $11.0 million compared to the three months ended December 31, 2023, primarily due to decreases of (i) $8.3 million at the West Texas complex as a result of decreased volumes sold and average prices and (ii) $2.8 million at the DJ Basin complex as a result of decreased volumes sold. Natural - gas sales increased by $0.4 million compared to the three months ended March 31, 2023, primarily due to an increase of $2.7 million at the DJ Basin complex as a result of increased average prices, partially offset by decreased volumes sold. This increase was offset partially by a decrease of $2.2 million at the West Texas complex due to decreased average prices, partially offset by increased volumes sold. NGLs sales NGLs sales increased by $5.6 million compared to the three months ended December 31, 2023, primarily due to increases of (i) $3.7 million and $1.6 million at the DJ Basin and Chipeta complexes, respectively, due to increased average prices and (ii) $2.4 million at the Powder River Basin complex as a result of increased volumes sold attributable to the acquisition of Meritage. These increases were offset partially by a decrease of $8.2 million at the West Texas complex due to a mix in contract structures, partially offset by increased average prices. NGLs sales decreased by $0.2 million compared to the three months ended March 31, 2023, primarily due to decreases of $7.7 million and $5.8 million at the DJ Basin and West Texas complexes, respectively, due to decreased average prices, partially offset by increased volumes sold. These decreases were offset partially by increases of (i) $6.4 million at the Powder River Basin complex attributable to the acquisition of Meritage, (ii) $2.5 million at the DBM water systems due to increased skim-oil volumes sold and average prices, and (iii) $2.4 million at the Chipeta complex due to increased volumes sold. Equity Income, Net – Related Parties Three Months Ended thousands except percentages March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Equity income, net – related parties $ 32,819 $ 36,120 (9) % $ 39,021 (16) % Equity income, net – related parties decreased by $3.3 million compared to the three months ended December 31, 2023, primarily due to decreases of $6.9 million at Mont Belvieu JV and $2.2 million at Saddlehorn due to the divestment of our interests in the first quarter of 2024. These decreases were partially offset by an increase of $4.8 million at Whitethorn LLC due to commercial activities prior to the divestment of our interest in the first quarter of 2024. Equity income, net – related parties decreased by $6.2 million compared to the three months ended March 31, 2023, primarily due to decreases of $6.8 million at Mont Belvieu JV due to the divestment of our interest in the first quarter of 2024 and $2.9 million at TEP. These decreases were partially offset by increases of $1.9 million and $1.8 million at Red Bluff Express and FRP, respectively. 41 Table of Contents Cost of Product and Operation and Maintenance Expenses Three Months Ended thousands except percentages March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Residue purchases $ 9,228 $ 7,931 16 % $ 15,638 (41) % NGLs purchases 70,425 60,303 17 % 51,829 36 % Other (33,574) (27,431) (22) % (16,008) (110) % Cost of product 46,079 40,803 13 % 51,459 (10) % Operation and maintenance 194,939 200,426 (3) % 174,239 12 % Total Cost of product and Operation and maintenance expenses $ 241,018 $ 241,229 — % $ 225,698 7 % Residue purchases Residue purchases decreased by $6.4 million compared to the three months ended March 31, 2023, primarily due to decreases of (i) $5.1 million at the Granger complex due to a contract expiration in the fourth quarter of 2023 and (ii) $1.9 million at the West Texas complex due to lower average prices. NGLs purchases NGLs purchases increased by $10.1 million compared to the three months ended December 31, 2023, primarily due to increased volumes purchased at the West Texas complex. NGLs purchases increased by $18.6 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $16.7 million at the West Texas complex attributable to increased volumes purchased, (ii) $2.4 million at the Powder River Basin complex attributable to the acquisition of Meritage, and (iii) $2.3 million at the DBM water systems due to increased skim-oil volumes and average prices. These increases were offset partially by a decrease of $5.2 million at the DJ Basin complex primarily due to a change in contract mix during the first quarter of 2024. Other items Other items decreased by $6.1 million compared to the three months ended December 31, 2023, primarily due to a decrease of $10.3 million at the West Texas complex due to changes in imbalance positions, partially offset by an increase of $4.2 million at the Powder River Basin complex due to changes in imbalance positions. Other items decreased by $17.6 million compared to the three months ended March 31, 2023, primarily due to decreases of (i) $13.7 million at the West Texas complex due to changes in imbalance positions, partially offset by higher offload costs, and (ii) $2.7 million and $2.6 million at the Chipeta and DJ Basin complexes, respectively, attributable to changes in imbalance positions. Operation and maintenance expense Operation and maintenance expense decreased by $5.5 million compared to the three months ended December 31, 2023, primarily due to decreases of (i) $2.4 million in equipment rental costs, (ii) $2.0 million in each of utility expense and equipment maintenance and repair expense, (iii) $1.8 million in mechanical-integrity costs, and (iv) $1.7 million in land-related costs. These decreases were offset partially by an increase of $5.9 million in salaries and wages costs. Operation and maintenance expense increased by $20.7 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $11.4 million in salaries and wages costs, (ii) $4.6 million in utility expense, (iii) $2.9 million in chemical and treating services, and (iv) $2.9 million in land-related costs. 42 Table of Contents Other Operating Expenses Three Months Ended thousands except percentages March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) General and administrative $ 67,839 $ 73,060 (7) % $ 51,117 33 % Property and other taxes 13,920 16,497 (16) % 6,831 104 % Depreciation and amortization 157,991 165,187 (4) % 144,626 9 % Long - lived asset and other impairments 23 4 NM 52,401 (100) % Total other operating expenses $ 239,773 $ 254,748 (6) % $ 254,975 (6) % General and administrative expenses General and administrative expenses decreased by $5.2 million compared to the three months ended December 31, 2023, primarily due to a decrease of $6.2 million in contract labor and consulting costs, partially offset by an increase of $1.1 million in personnel costs. General and administrative expenses increased by $16.7 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $7.1 million in personnel costs, (ii) $5.5 million in information technology costs, and (iii) $1.6 million in contract labor and consulting expense. Property and other taxes Property and other taxes decreased by $2.6 million compared to the three months ended December 31, 2023, primarily due to a decrease in the ad valorem property tax accrual related to the finalization of 2023 assessments at the DJ Basin complex. Property and other taxes increased by $7.1 million compared to the three months ended March 31, 2023, primarily due to a lower ad valorem property tax accrual recorded during the first quarter of 2023 related to the finalization of 2022 assessments at the DJ Basin complex. Depreciation and amortization expense Depreciation and amortization expense decreased by $7.2 million compared to the three months ended December 31, 2023, primarily due to decreases of (i) $2.9 million at the DJ Basin complex due to updated salvage values and (ii) $1.7 million and $1.2 million at the Red Desert and Powder River Basin complexes, respectively, due to asset retirement obligation revisions. Depreciation and amortization expense increased by $13.4 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $15.1 million at the Powder River Basin complex attributable to the acquisition of Meritage and (ii) $4.8 million and $3.1 million at the West Texas complex and DBM water systems, respectively, primarily related to capital projects being placed into service. These increases were offset partially by a decrease of $7.9 million at the DJ Basin complex primarily due to acceleration of depreciation expense during 2023 and updated salvage values. Long-lived asset and other impairment expense Long-lived asset and other impairment expense for the three months ended March 31, 2023, was primarily due to a $52.1 million impairment for assets located in the Rockies. For further information on Long - lived asset and other impairment expense, see Note 8—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. 43 Table of Contents Interest Expense Three Months Ended thousands except percentages March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Long - term and short - term debt $ (95,956) $ (98,977) (3) % $ (81,151) 18 % Finance lease liabilities (677) (467) 45 % (163) NM Commitment fees and amortization of debt-related costs (3,200) (3,196) — % (2,881) 11 % Capitalized interest 5,327 5,018 6 % 2,525 111 % Interest expense $ (94,506) $ (97,622) (3) % $ (81,670) 16 % Interest expense decreased by $3.1 million compared to the three months ended December 31, 2023, primarily due to a decrease of $5.7 million resulting from no outstanding borrowings under the RCF during the first quarter of 2024, partially offset by an increase of $2.7 million due to borrowings on the commercial paper program that was established during the fourth quarter of 2023. Interest expense increased by $12.8 million compared to the three months ended March 31, 2023, primarily due to increases of (i) $11.7 million of interest incurred on the 6.150% Senior Notes due 2033 that were issued during the second quarter of 2023, (ii) $9.8 million of interest incurred on the 6.350% Senior Notes due 2029 that were issued during the third quarter of 2023, and (iii) $5.7 million due to borrowings on the commercial paper program that was established during the fourth quarter of 2023. These increases were offset partially by decreases of (i) $4.5 million due to credit-rating related interest rate changes and lower outstanding balances on certain senior notes, (ii) $7.0 million due to no outstanding borrowings under the RCF during the first quarter of 2024, and (iii) $2.8 million due to higher capitalized interest. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2. Income Tax Expense (Benefit) We are not a taxable entity for U.S. federal income tax purposes; therefore, our federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax. 44 Table of Contents RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Adjusted gross margin. We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity - related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interest owners’ proportionate share of revenues and cost of product. We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent - of - proceeds, percent - of - product, and keep - whole contracts, (ii) costs associated with the valuation of gas and NGLs imbalances, (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by us and sold to third parties, and (iv) costs associated with our offload commitments with third parties providing firm-processing capacity. The electricity-related expenses included in our Adjusted gross margin definition relate to pass-through expenses that are recorded as Operation and maintenance expense with an offset recorded as revenue for the reimbursement by certain customers. Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non - cash equity - based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) income tax benefit, (vi) other income, and (vii) the noncontrolling interest owners’ proportionate share of revenues and expenses. We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks, and rating agencies, use, among other measures, to assess the following: • our operating performance as compared to other publicly traded partnerships in the midstream industry, without regard to financing methods, capital structure, or historical cost basis; • the ability of our assets to generate cash flow to make distributions; and • the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities. Free cash flow. We define “Free cash flow” as net cash provided by operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings. Management considers Free cash flow an appropriate metric for assessing capital discipline, cost efficiency, and balance - sheet strength. Although Free cash flow is the metric used to assess WES’s ability to make distributions to unitholders, this measure should not be viewed as indicative of the actual amount of cash that is available for distributions or planned for distributions for a given period. Instead, Free cash flow represents the amount of cash that is available in aggregate for distributions, debt repayments, and other general partnership purposes. 45 Table of Contents Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure that is most directly comparable to Adjusted gross margin is gross margin. Net income (loss) and net cash provided by operating activities are the GAAP measures that are most directly comparable to Adjusted EBITDA. The GAAP measure that is most directly comparable to Free cash flow is net cash provided by operating activities. Our non - GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of gross margin, net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA, and Free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect gross margin, net income (loss), and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA, and Free cash flow may not be comparable to similarly titled measures of other companies in our industry, thereby diminishing their utility as comparative measures. Management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA, and Free cash flow compared to (as applicable) gross margin, net income (loss), and net cash provided by operating activities, and incorporating this knowledge into its decision - making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results. The following tables present (i) a reconciliation of the GAAP financial measure of gross margin to the non - GAAP financial measure of Adjusted gross margin, (ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non - GAAP financial measure of Adjusted EBITDA, and (iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non - GAAP financial measure of Free cash flow: Three Months Ended thousands March 31, 2024 December 31, 2023 March 31, 2023 Reconciliation of Gross margin to Adjusted gross margin Total revenues and other $ 887,729 $ 858,208 $ 733,982 Less: Cost of product 46,079 40,803 51,459 Depreciation and amortization 157,991 165,187 144,626 Gross margin 683,659 652,218 537,897 Add: Distributions from equity investments 48,337 46,661 51,975 Depreciation and amortization 157,991 165,187 144,626 Less: Reimbursed electricity-related charges recorded as revenues 24,695 25,273 23,569 Adjusted gross margin attributable to noncontrolling interests (1) 20,240 19,412 15,774 Adjusted gross margin $ 845,052 $ 819,381 $ 695,155 _________________________________________________________________________________________ (1) Includes (i) the 25% third - party interest in Chipeta and (ii) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary, which collectively represent WES’s noncontrolling interests. 46 Table of Contents To facilitate investor and industry analysis, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets . Three Months Ended thousands except per-unit amounts March 31, 2024 December 31, 2023 March 31, 2023 Gross margin Gross margin for natural - gas assets (1) $ 511,584 $ 484,688 $ 393,673 Gross margin for crude - oil and NGLs assets (1) 93,578 103,228 89,281 Gross margin for produced - water assets (1) 85,041 70,509 59,549 Per - Mcf Gross margin for natural - gas assets (2) 1.09 1.04 1.03 Per - Bbl Gross margin for crude - oil and NGLs assets (2) 1.78 1.57 1.59 Per - Bbl Gross margin for produced - water assets (2) 0.81 0.71 0.68 Adjusted gross margin Adjusted gross margin for natural - gas assets $ 597,163 $ 579,278 $ 480,009 Adjusted gross margin for crude - oil and NGLs assets 150,269 157,048 145,577 Adjusted gross margin for produced - water assets 97,620 83,055 69,569 Per - Mcf Adjusted gross margin for natural - gas assets (3) 1.32 1.29 1.30 Per - Bbl Adjusted gross margin for crude - oil and NGLs assets (3) 2.92 2.43 2.65 Per - Bbl Adjusted gross margin for produced - water assets (3) 0.95 0.86 0.81 _________________________________________________________________________________________ (1) Excludes corporate-level depreciation and amortization. (2) Average for period. Calculated as Gross margin for natural - gas assets, crude - oil and NGLs assets, or produced - water assets, divided by the respective total throughput (MMcf or MBbls) for natural - gas assets, crude - oil and NGLs assets, or produced - water assets. (3) Average for period. Calculated as Adjusted gross margin for natural - gas assets, crude - oil and NGLs assets, or produced - water assets, divided by the respective total throughput (MMcf or MBbls) attributable to WES for natural - gas assets, crude - oil and NGLs assets, or produced - water assets. 47 Table of Contents Three Months Ended thousands March 31, 2024 December 31, 2023 March 31, 2023 Reconciliation of Net income (loss) to Adjusted EBITDA Net income (loss) $ 586,216 $ 295,752 $ 208,341 Add: Distributions from equity investments 48,337 46,661 51,975 Non - cash equity - based compensation expense 9,423 9,970 7,199 Interest expense 94,506 97,622 81,670 Income tax expense 1,522 1,405 1,416 Depreciation and amortization 157,991 165,187 144,626 Impairments 23 4 52,401 Other expense 112 71 200 Less: Gain (loss) on divestiture and other, net 239,617 (6,434) (2,118) Gain (loss) on early extinguishment of debt 524 — — Equity income, net – related parties 32,819 36,120 39,021 Other income 2,346 2,862 1,215 Adjusted EBITDA attributable to noncontrolling interests (1) 14,415 13,459 11,015 Adjusted EBITDA $ 608,409 $ 570,665 $ 498,695 Reconciliation of Net cash provided by operating activities to Adjusted EBITDA Net cash provided by operating activities $ 399,708 $ 473,300 $ 302,424 Interest (income) expense, net 94,506 97,622 81,670 Accretion and amortization of long - term obligations, net (2,190) (2,174) (1,692) Current income tax expense (benefit) 1,292 1,315 492 Other (income) expense, net (2,346) (2,862) (1,215) Distributions from equity investments in excess of cumulative earnings – related parties 19,033 7,389 12,366 Changes in assets and liabilities: Accounts receivable, net 53,714 17,773 4,037 Accounts and imbalance payables and accrued liabilities, net 100,383 (19,021) 136,460 Other items, net (41,276) 10,782 (24,832) Adjusted EBITDA attributable to noncontrolling interests (1) (14,415) (13,459) (11,015) Adjusted EBITDA $ 608,409 $ 570,665 $ 498,695 Cash flow information Net cash provided by operating activities $ 399,708 $ 473,300 $ 302,424 Net cash provided by (used in) investing activities 396,849 (1,068,707) (179,178) Net cash provided by (used in) financing activities (774,098) 378,700 (297,257) _________________________________________________________________________________________ (1) Includes (i) the 25% third - party interest in Chipeta and (ii) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary, which collectively represent WES’s noncontrolling interests. 48 Table of Contents Three Months Ended thousands March 31, 2024 December 31, 2023 March 31, 2023 Reconciliation of Net cash provided by operating activities to Free cash flow Net cash provided by operating activities $ 399,708 $ 473,300 $ 302,424 Less: Capital expenditures 193,789 198,653 173,088 Contributions to equity investments – related parties — — 110 Add: Distributions from equity investments in excess of cumulative earnings – related parties 19,033 7,389 12,366 Free cash flow $ 224,952 $ 282,036 $ 141,592 Cash flow information Net cash provided by operating activities $ 399,708 $ 473,300 $ 302,424 Net cash provided by (used in) investing activities 396,849 (1,068,707) (179,178) Net cash provided by (used in) financing activities (774,098) 378,700 (297,257) Gross margin. Refer to Operating Results within this Item 2 for a discussion of the components of Gross margin as compared to the prior periods, including Service Revenue s, Product Sales , Cost of Product (Residue purchases, NGLs purchases, and Other items), and Other Operating Expenses (Depreciation and amortization expense). Gross margin increased by $31.4 million compared to the three months ended December 31, 2023, due to (i) a $29.5 million increase in total revenues and other and (ii) a $7.2 million decrease in depreciation and amortization. These amounts were offset partially by a $5.3 million increase in cost of product. Gross margin increased by $145.8 million compared to the three months ended March 31, 2023, due to (i) a $153.7 million increase in total revenues and other and (ii) a $5.4 million decrease in cost of product. These amounts were offset partially by a $13.4 million increase in depreciation and amortization. Net income (loss). Refer to Operating Results within this Item 2 for a discussion of the primary components of Net income (loss) as compared to the prior periods. Net income (loss) increased by $290.5 million compared to the three months ended December 31, 2023, primarily due to (i) a $246.1 million increase in gain (loss) on divestiture and other, net, (ii) a $29.5 million increase in total revenues and other, and (iii) a $15.2 million decrease in total operating expenses. Net income (loss) increased by $377.9 million compared to the three months ended March 31, 2023, primarily due to (i) a $241.7 million increase in gain (loss) on divestiture and other, net and (ii) a $153.7 million increase in total revenues and other. These amounts were offset partially by (i) a $12.8 million increase in interest expense and (ii) a $6.2 million decrease in equity income, net – related parties. Net cash provided by operating activities. Refer to Historical cash flow within this Item 2 for a discussion of the primary components of Net cash provided by operating activities as compared to the prior periods. 49 Table of Contents KEY PERFORMANCE METRICS Three Months Ended thousands except percentages and per-unit amounts March 31, 2024 December 31, 2023 Inc/ (Dec) March 31, 2023 Inc/ (Dec) Adjusted gross margin $ 845,052 $ 819,381 3 % $ 695,155 22 % Per - Mcf Adjusted gross margin for natural - gas assets (1) 1.32 1.29 2 % 1.30 2 % Per - Bbl Adjusted gross margin for crude - oil and NGLs assets (1) 2.92 2.43 20 % 2.65 10 % Per - Bbl Adjusted gross margin for produced - water assets (1) 0.95 0.86 10 % 0.81 17 % Adjusted EBITDA 608,409 570,665 7 % 498,695 22 % Free cash flow 224,952 282,036 (20) % 141,592 59 % _________________________________________________________________________________________ (1) Average for period. Calculated as Adjusted gross margin for natural - gas assets, crude - oil and NGLs assets, or produced - water assets, divided by the respective total throughput (MMcf or MBbls) attributable to WES for natural - gas assets, crude - oil and NGLs assets, or produced - water assets. Adjusted gross margin. Adjusted gross margin increased by $25.7 million compared to the three months ended December 31, 2023, primarily due to (i) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, increased throughput, and increased deficiency fees on certain contracts with increasing throughput minimums at the West Texas complex, (ii) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased throughput at the DBM water systems, (iii) increased throughput at the DJ Basin complex, (iv) commercial activities prior to the divestment of our interest in the first quarter of 2024 at Whitethorn LLC, and (v) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, at the DBM oil system. These increases were offset partially by decreases due to annual cost-of-service rate adjustments that increased revenue during the fourth quarter of 2023 at the Springfield and DJ Basin oil systems. Adjusted gross margin increased by $149.9 million compared to the three months ended March 31, 2023, primarily due to (i) increased throughput, a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums at the West Texas complex, (ii) increased throughput at the Powder River Basin complex attributable to the acquisition of Meritage, (iii) a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased throughput at the DBM water systems, and (iv) increased throughput at the DJ Basin complex. These increases were offset partially by (i) decreased processing fees at the Brasada complex resulting from a change in contract terms effective July 1, 2023, and (ii) a decrease in distributions from TEP. Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.03 compared to the three months ended December 31, 2023, primarily due to increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums. This increase was offset partially by a decrease resulting from an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023 at the Springfield system. Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.02 compared to the three months ended March 31, 2023, primarily due to (i) increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums, and (ii) increased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets. These increases were offset partially by decreased processing fees at the Brasada complex resulting from a change in contract terms effective July 1, 2023. 50 Table of Contents Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.49 compared to the three months ended December 31, 2023, primarily due to the sale of our interests in Whitethorn LLC, Saddlehorn, Panola, and Mont Belvieu JV in the first quarter of 2024, all of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets. These increases were offset partially by decreases related to (i) an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023, partially offset by increased throughput, at the DJ Basin oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets, and (ii) an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2023 at the Springfield system. Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.27 compared to the three months ended March 31, 2023, primarily due to (i) the sale of our interests in Whitethorn LLC, Saddlehorn, Panola, and Mont Belvieu JV in the first quarter of 2024, all of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets, and (ii) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, at the DBM oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets. These increases were offset partially by (i) decreased deficiency fees on demand volumes at the DJ Basin oil system and (ii) a decrease in distributions from TEP. Per - Bbl Adjusted gross margin for produced - water assets increased by $0.09 and $0.14 compared to the three months ended December 31, 2023, and March 31, 2023, respectively, primarily due to increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024. Adjusted EBITDA. Adjusted EBITDA increased by $37.7 million compared to the three months ended December 31, 2023, primarily due to (i) a $29.5 million increase in total revenues and other, (ii) a $5.5 million decrease in operation and maintenance expenses, (iii) a $4.7 million decrease in general and administrative expenses excluding non - cash equity - based compensation expense, and (iv) a $2.6 million decrease in property taxes. These amounts were offset partially by a $5.2 million increase in cost of product (net of lower of cost or market inventory adjustments). Adjusted EBITDA increased by $109.7 million compared to the three months ended March 31, 2023, primarily due to (i) a $153.7 million increase in total revenues and other and (ii) a $5.3 million decrease in cost of product (net of lower of cost or market inventory adjustments). These amounts were offset partially by (i) a $20.7 million increase in operation and maintenance expenses, (ii) a $14.5 million increase in general and administrative expenses excluding non - cash equity - based compensation expense, (iii) a $7.1 million increase in property and other taxes, and (iv) a $3.6 million decrease in distributions from equity investments. Free cash flow. Free cash flow decreased by $57.1 million compared to the three months ended December 31, 2023, primarily due to a $73.6 million decrease in net cash provided by operating activities, partially offset by (i) an $11.6 million increase in distributions from equity investments in excess of cumulative earnings and (ii) a $4.9 million decrease in capital expenditures. Free cash flow increased by $83.4 million compared to the three months ended March 31, 2023, primarily due to (i) a $97.3 million increase in net cash provided by operating activities and (ii) a $6.7 million increase in distributions from equity investments in excess of cumulative earnings. These amounts were offset partially by a $20.7 million increase in capital expenditures. See Capital Expenditures and Historical Cash Flow within this Item 2 for further information. 51 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our primary cash uses include equity and debt service, operating expenses, and capital expenditures. Our sources of liquidity, as of March 31, 2024, included cash and cash equivalents, cash flows generated from operations, effective borrowing capacity under the RCF, our commercial paper program, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to satisfy our short - term working capital requirements and long - term capital - expenditure and debt-service requirements. The amount of future distributions to unitholders will be determined by the Board on a quarterly basis. Under our partnership agreement, we distribute all of our available cash (beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end. Our cash flow and resulting ability to make cash distributions are dependent on our ability to generate cash flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter. The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. The Board declared a cash distribution to unitholders for the first quarter of 2024 of $0.875 per unit, or $340.9 million in the aggregate. The cash distribution is payable on May 15, 2024, to our unitholders of record at the close of business on May 1, 2024. To facilitate the distribution of available cash, during 2022 we adopted a financial policy that provided for an additional distribution (“Enhanced Distribution”) to be paid in conjunction with the regular first-quarter distribution of the following year (beginning in 2023), in a target amount equal to Free cash flow generated in the prior year after subtracting Free cash flow used for the prior year’s debt repayments, regular-quarter distributions, and unit repurchases. This Enhanced Distribution is subject to Board discretion, the establishment of cash reserves for the proper conduct of our business, and is also contingent on the attainment of prior year-end net leverage thresholds (the ratio of our total principal debt outstanding less total cash on hand as of the end of such period, as compared to our trailing-twelve-months Adjusted EBITDA) after taking the Enhanced Distribution for such prior year into effect. Free cash flow and Adjusted EBITDA are defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2. In 2022, we announced a common-unit buyback program of up to $1.25 billion through December 31, 2024. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of our common units, and other factors, including organic growth and acquisition opportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. During the three months ended March 31, 2024, there were no common units repurchased. During the three months ended March 31, 2023, we repurchased 285,688 common units for an aggregate purchase price of $7.1 million. The units were canceled immediately upon receipt. As of March 31, 2024, we had an authorized amount of $627.8 million remaining under the program. Management continuously monitors our leverage position and other financial projections to manage the capital structure according to long-term objectives. We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or financing agreements through cash purchases, exchanges, open - market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors, and the amounts involved may be material. Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control. Read Risk Factors under Part II, Item 1A of this Form 10-Q. 52 Table of Contents Working capital . Working capital is an indication of liquidity and potential needs for short - term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and other capital activities. As of March 31, 2024, we had a $358.2 million working capital surplus, which we define as the amount by which current assets exceed current liabilities. As of March 31, 2024, there was $1.9 billion in effective borrowing capacity under the RCF, after taking into account the $100.0 million of outstanding commercial paper borrowings, for which we maintain availability under the RCF as support for our commercial paper program. See Note 9—Selected Components of Working Capital and Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. Capital expenditures . Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. Capital expenditures include maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to reduce costs, increase revenues, or increase system throughput or capacity from current levels. Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows: Three Months Ended March 31, thousands 2024 2023 Acquisitions $ 443 $ — Capital expenditures (1) 193,789 173,088 Capital incurred (1) 210,930 181,803 _________________________________________________________________________________________ (1) For the three months ended March 31, 2024 and 2023, included $5.3 million and $2.5 million, respectively, of capitalized interest. Capital expenditures increased by $20.7 million for the three months ended March 31, 2024, primarily due to increases of (i) $12.4 million at the West Texas complex, primarily attributable to engineering and equipment milestone payments for the North Loving Plant, (ii) $10.9 million related to the acquisition of Meritage, (iii) $6.2 million at the DJ Basin complex due to the purchase of a field office in the first quarter of 2024 and an increase in well connection and pipeline projects, and (iv) $5.4 million in corporate-level capital expenditures. These increases were offset partially by a decrease of $13.3 million at the DBM water systems due to reduced construction of water - disposal wells and facilities and well-connect projects. 53 Table of Contents Historical cash flow . The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities: Three Months Ended March 31, thousands 2024 2023 Net cash provided by (used in): Operating activities $ 399,708 $ 302,424 Investing activities 396,849 (179,178) Financing activities (774,098) (297,257) Net increase (decrease) in cash and cash equivalents $ 22,459 $ (174,011) Operating activities . Net cash provided by operating activities increased for the three months ended March 31, 2024, primarily due to higher cash operating income, partially offset by lower distributions from equity investments and higher interest expense. Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior periods. Investing activities . Net cash provided by investing activities for the three months ended March 31, 2024, primarily included the following: • $582.7 million of proceeds related to the sale of several equity investments to third parties; • $19.0 million of distributions received from equity investments in excess of cumulative earnings; • $193.8 million of capital expenditures, primarily related to expansion, construction, and asset - integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, Powder River Basin complex, and DBM oil system; and • $10.7 million of increases to materials and supplies inventory. Net cash used in investing activities for the three months ended March 31, 2023, primarily included the following: • $173.1 million of capital expenditures, primarily related to construction, expansion, and asset - integrity projects at the West Texas complex, DBM water systems, DBM oil system, and DJ Basin complex; • $18.3 million of increases to materials and supplies inventory; and • $12.4 million of distributions received from equity investments in excess of cumulative earnings. Financing activities . Net cash used in financing activities for the three months ended March 31, 2024, primarily included the following: • $510.4 million of net repayments under the commercial paper program; • $229.1 million of distributions paid to WES unitholders and noncontrolling interest owners; and • $14.5 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases. Net cash used in financing activities for the three months ended March 31, 2023, primarily included the following: • $213.1 million to redeem the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value; • $203.1 million of distributions paid to WES unitholders and noncontrolling interest owners; • $100.0 million of repayments of outstanding borrowings under the RCF; 54 Table of Contents • $7.1 million of unit repurchases; and • $220.0 million of borrowings under the RCF, which were used for general partnership purposes. Debt and credit facilities. As of March 31, 2024, the carrying value of outstanding debt was $7.4 billion and we have $1.9 billion in effective borrowing capacity under WES Operating’s $2.0 billion RCF, after taking into account the $100.0 million of outstanding commercial paper borrowings, for which we maintain availability under the RCF as support for WES Operating’s commercial paper program. During the three months ended March 31, 2024, WES Operating purchased and retired $15.1 million of certain of its senior notes via open-market repurchases with cash from operations and a gain of $0.5 million was recognized for the early retirement of portions of these notes. As of March 31, 2024, the 3.100% Senior Notes due 2025 were classified as long-term debt on the consolidated balance sheet as WES Operating has ability and intent to refinance these obligations using long-term debt. Subsequent to March 31, 2024, WES Operating purchased and retired $134.9 million of certain of its senior notes via open-market repurchases. For additional information on our senior notes, RCF, and commercial paper program, see Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. Credit risk . We bear credit risk through exposure to non - payment or non - performance by our counterparties, including Occidental, financial institutions, customers, and other parties. Generally, non - payment or non - performance results from a customer’s inability to satisfy payables to us for services rendered, minimum - volume - commitment deficiency payments owed, or volumes owed pursuant to gas- or NGLs-imbalance agreements. We examine and monitor the creditworthiness of customers and may establish credit limits for customers. We are subject to the risk of non - payment or late payment by producers for gathering, processing, transportation, and disposal fees. Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our contractual rights to request adequate assurance of performance. We expect our exposure to the concentrated risk of non - payment or non - performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental - produced volumes, but also, in some instances, the volumes of other working - interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements. 55 Table of Contents ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING Our consolidated financial statements include the consolidated financial results of WES Operating. Our results of operations do not differ materially from the results of operations and cash flows of WES Operating, which are reconciled below. Reconciliation of net income (loss). The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows: Three Months Ended thousands March 31, 2024 December 31, 2023 March 31, 2023 Net income (loss) attributable to WES $ 572,830 $ 288,354 $ 203,645 Limited partner interest in WES Operating not held by WES (1) 11,700 5,906 4,161 General and administrative expenses (2) 360 1,016 232 Other income (expense), net (59) (61) (25) Income taxes — 6 — Net income (loss) attributable to WES Operating $ 584,831 $ 295,221 $ 208,013 _________________________________________________________________________________________ (1) Represents the portion of net income (loss) allocated to the limited partner interest in WES Operating not held by WES. A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating for all periods presented. (2) Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating. Reconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows: Three Months Ended March 31, thousands 2024 2023 WES net cash provided by operating activities $ 399,708 $ 302,424 General and administrative expenses (1) 360 232 Non - cash equity - based compensation expense (145) (141) Changes in working capital (19,215) (11,522) Other income (expense), net (59) (25) WES Operating net cash provided by operating activities $ 380,649 $ 290,968 WES net cash provided by (used in) financing activities $ (774,098) $ (297,257) Distributions to WES unitholders (2) 223,438 196,569 Distributions to WES from WES Operating (3) (224,855) (209,242) Increase (decrease) in outstanding checks (67) (42) Unit repurchases — 7,061 Other 19,364 11,950 WES Operating net cash provided by (used in) financing activities $ (756,218) $ (290,961) _________________________________________________________________________________________ (1) Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating. (2) Represents distributions to WES common unitholders paid under WES’s partnership agreement. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. (3) Difference attributable to elimination in consolidation of WES Operating’s distributions on partnership interests owned by WES. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. 56 Table of Contents Noncontrolling interest. WES Operating’s noncontrolling interest consists of the 25% third - party interest in Chipeta. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. WES Operating distributions. WES Operating distributes all of its available cash on a quarterly basis to WES Operating unitholders in proportion to their share of limited partner interests in WES Operating. See Note 4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the amounts of assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recognized during the periods reported. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2023. RECENT ACCOUNTING DEVELOPMENTS See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.