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 June 30, 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; 33 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. 34 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, and the Rocky Mountains (Colorado, Utah, and Wyoming). As of June 30, 2024, our assets and investments consisted of the following: Wholly Owned and Operated Operated Interests Equity Interests Gathering systems (1) 18 2 1 Treating facilities 38 3 — Natural - gas processing plants/trains 25 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 six months ended June 30, 2024, included the following: • We closed on the sale of (i) 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) our 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million. See Acquisitions and Divestitures within this Item 2 for additional information. • WES Operating purchased and retired $150.0 million of certain of its senior notes via open-market repurchases. • Our regular second - quarter 2024 per - unit distribution is unchanged from the first-quarter 2024 per-unit distribution of $0.875. • Natural - gas throughput attributable to WES totaled 4,988 MMcf/d and 4,989 MMcf/d for the three and six months ended June 30, 2024, respectively, representing no change compared to the three months ended March 31, 2024, and a 19% increase compared to the six months ended June 30, 2023. • Crude - oil and NGLs throughput attributable to WES totaled 515 MBbls/d and 540 MBbls/d for the three and six months ended June 30, 2024, respectively, representing a 9% decrease and a 13% decrease compared to the three months ended March 31, 2024, and six months ended June 30, 2023, respectively. • Produced - water throughput attributable to WES totaled 1,080 MBbls/d and 1,103 MBbls/d for the three and six months ended June 30, 2024, respectively, representing a 4% decrease and a 16% increase compared to the three months ended March 31, 2024, and six months ended June 30, 2023, respectively. • Gross margin was $688.2 million and $1.4 billion for the three and six months ended June 30, 2024, respectively, representing a 1% increase and a 26% increase compared to the three months ended March 31, 2024, and six months ended June 30, 2023, respectively. See Reconciliation of Non-GAAP Financial Measures within this Item 2. 35 Table of Contents • Adjusted gross margin for natural - gas assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $1.33 per Mcf and $1.32 per Mcf for the three and six months ended June 30, 2024, respectively, representing a 1% increase and a 3% increase compared to the three months ended March 31, 2024, and six months ended June 30, 2023, respectively. • 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 $2.96 per Bbl and $2.94 per Bbl for the three and six months ended June 30, 2024, respectively, representing a 1% increase and a 13% increase compared to the three months ended March 31, 2024, and six months ended June 30, 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 $0.97 per Bbl and $0.96 per Bbl for the three and six months ended June 30, 2024, respectively, representing a 2% increase and a 17% increase compared to the three months ended March 31, 2024, and six months ended June 30, 2023, respectively. The following table provides additional information on throughput for the periods presented below: Three Months Ended Six Months Ended June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Throughput for natural-gas assets (MMcf/d) Delaware Basin 1,858 1,761 6 % 1,810 1,581 14 % DJ Basin 1,452 1,372 6 % 1,412 1,308 8 % Powder River Basin 426 406 5 % 416 34 NM Equity investments 508 508 — % 509 438 16 % Other 911 1,117 (18) % 1,013 970 4 % Total throughput for natural - gas assets 5,155 5,164 — % 5,160 4,331 19 % Throughput for crude-oil and NGLs assets (MBbls/d) Delaware Basin 241 225 7 % 233 206 13 % DJ Basin 91 87 5 % 89 67 33 % Powder River Basin 25 23 9 % 24 — NM Equity investments 130 202 (36) % 166 319 (48) % Other 39 39 — % 39 40 (3) % Total throughput for crude - oil and NGLs assets 526 576 (9) % 551 632 (13) % Throughput for produced-water assets (MBbls/d) Delaware Basin 1,102 1,149 (4) % 1,126 970 16 % Total throughput for produced - water assets 1,102 1,149 (4) % 1,126 970 16 % _________________________________________________________________________________________ NM — Not meaningful 36 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 six months ended June 30, 2024, ranged from a low of $70.38 per barrel in January 2024 to a high of $86.91 per barrel in April 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. 37 Table of Contents ACQUISITIONS AND DIVESTITURES Marcellus Interest systems. During the second quarter of 2024, we closed on the sale of our 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million, resulting in a net gain on sale of $63.9 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations. 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 Mont Belvieu JV and Whitethorn LLC also resolved outstanding legal proceedings associated with those assets. 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. 38 Table of Contents RESULTS OF OPERATIONS OPERATING RESULTS The following tables and discussion present a summary of our results of operations: Three Months Ended Six Months Ended thousands June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Total revenues and other (1) $ 905,629 $ 887,729 $ 1,793,358 $ 1,472,255 Equity income, net – related parties 27,431 32,819 60,250 81,345 Total operating expenses (1) 522,653 480,791 1,003,444 924,528 Gain (loss) on divestiture and other, net 59,342 239,617 298,959 (2,188) Operating income (loss) 469,749 679,374 1,149,123 626,884 Interest expense (90,522) (94,506) (185,028) (167,852) Gain (loss) on early extinguishment of debt 4,879 524 5,403 6,813 Other income (expense), net 4,213 2,346 6,559 4,087 Income (loss) before income taxes 388,319 587,738 976,057 469,932 Income tax expense (benefit) 755 1,522 2,277 2,075 Net income (loss) 387,564 586,216 973,780 467,857 Net income (loss) attributable to noncontrolling interests 8,916 13,386 22,302 11,291 Net income (loss) attributable to Western Midstream Partners, LP (2) $ 378,648 $ 572,830 $ 951,478 $ 456,566 _________________________________________________________________________________________ (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 “for the three months ended June 30, 2024” refer to the comparison of the three months ended June 30, 2024, to the three months ended March 31, 2024; and any increases or decreases “for the six months ended June 30, 2024” refer to the comparison of the six months ended June 30, 2024, to the six months ended June 30, 2023. 39 Table of Contents Throughput Three Months Ended Six Months Ended June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Throughput for natural-gas assets (MMcf/d) Gathering, treating, and transportation 438 606 (28) % 522 382 37 % Processing 4,209 4,050 4 % 4,129 3,511 18 % Equity investments (1) 508 508 — % 509 438 16 % Total throughput 5,155 5,164 — % 5,160 4,331 19 % Throughput attributable to noncontrolling interests (2) 167 174 (4) % 171 150 14 % Total throughput attributable to WES for natural - gas assets 4,988 4,990 — % 4,989 4,181 19 % Throughput for crude-oil and NGLs assets (MBbls/d) Gathering, treating, and transportation 396 374 6 % 385 313 23 % Equity investments (1) 130 202 (36) % 166 319 (48) % Total throughput 526 576 (9) % 551 632 (13) % Throughput attributable to noncontrolling interests (2) 11 11 — % 11 13 (15) % Total throughput attributable to WES for crude - oil and NGLs assets 515 565 (9) % 540 619 (13) % Throughput for produced-water assets (MBbls/d) Gathering and disposal 1,102 1,149 (4) % 1,126 970 16 % Throughput attributable to noncontrolling interests (2) 22 23 (4) % 23 20 15 % Total throughput attributable to WES for produced - water assets 1,080 1,126 (4) % 1,103 950 16 % _________________________________________________________________________________________ (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 decreased by 2 MMcf/d for the three months ended June 30, 2024, primarily due to (i) lower volumes at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024 and (ii) lower volumes at the Chipeta complex. These decreases were offset partially by higher volumes at the West Texas and DJ Basin complexes due to increased production in the areas. Total throughput attributable to WES for natural - gas assets increased by 808 MMcf/d for the six months ended June 30, 2024, 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, and (iii) higher volumes on the Red Bluff Express pipeline due to the addition of a new receipt point into the pipeline. Crude-oil and NGLs assets Total throughput attributable to WES for crude - oil and NGLs assets decreased by 50 MBbls/d for the three months ended June 30, 2024, primarily due to the divestiture of Whitethorn LLC and Saddlehorn in the first quarter of 2024, partially offset by higher volumes at the DBM oil system due to increased production in the area. Total throughput attributable to WES for crude - oil and NGLs assets decreased by 79 MBbls/d for the six months ended June 30, 2024, primarily due to the divestiture of Whitethorn LLC, Mont Belvieu JV, and Saddlehorn in the first quarter of 2024. These decreases were offset partially by (i) higher volumes at the DBM and DJ Basin oil systems resulting from increased production in the areas and (ii) higher volumes on the Thunder Creek NGL pipeline, which was acquired as part of the Meritage acquisition. 40 Table of Contents Produced-water assets Total throughput attributable to WES for produced - water assets decreased by 46 MBbls/d for the three months ended June 30, 2024, due to fluctuations in produced water used for recycling activities in the upstream operations of our producers. Total throughput attributable to WES for produced - water assets increased by 153 MBbls/d for the six months ended June 30, 2024, due to higher production. Service Revenues Three Months Ended Six Months Ended thousands except percentages June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Service revenues – fee based $ 793,785 $ 781,262 2 % $ 1,575,047 $ 1,309,373 20 % Service revenues – product based 61,466 66,740 (8) % 128,206 93,766 37 % Total service revenues $ 855,251 $ 848,002 1 % $ 1,703,253 $ 1,403,139 21 % Service revenues – fee based Service revenues – fee based increased by $12.5 million for the three months ended June 30, 2024, primarily due to increases of (i) $11.8 million and $6.4 million at the West Texas and DJ Basin complexes, respectively, as a result of increased throughput and electricity-related rates billed to customers, partially offset by a decrease in deficiency fees, and (ii) $4.1 million at the DBM oil system primarily due to increased throughput. These increases were offset partially by a decrease of $9.0 million at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024. Service revenues – fee based increased by $265.7 million for the six months ended June 30, 2024, primarily due to increases of (i) $95.2 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, (ii) $89.3 million at the Powder River Basin complex attributable to the acquisition of Meritage, (iii) $50.2 million and $16.3 million at the DBM water and DBM oil systems as a result of increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and (iv) $41.9 million at the DJ Basin complex primarily due to increased throughput. These increases were offset partially by decreases of (i) $12.3 million at the Brasada complex due to a change in contract terms effective July 1, 2023, partially offset by increased throughput, (ii) $5.6 million at the Granger complex due to a contract expiration in the fourth quarter of 2023, and (iii) $4.2 million at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024. Service revenues – product based Service revenues – product based decreased by $5.3 million for the three months ended June 30, 2024, primarily due to a decrease of $2.6 million at the West Texas complex due to the contract mix of product-related electricity reimbursements from customers, partially offset by increased average prices. Service revenues – product based increased by $34.4 million for the six months ended June 30, 2024, primarily due to increases of (i) $24.4 million at the West Texas complex due to increased volumes sold, (ii) $3.7 million at the DBM water systems due to increased skim-oil average prices and volumes sold, (iii) $2.6 million at the Powder River Basin complex attributable to the acquisition of Meritage, and (iv) $2.5 million at the DJ Basin complex primarily due to increased throughput. 41 Table of Contents Product Sales Three Months Ended Six Months Ended thousands except percentages and per-unit amounts June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Natural - gas sales $ 8,931 $ 3,194 180 % $ 12,125 $ 10,012 21 % NGLs sales 41,180 36,098 14 % 77,278 58,672 32 % Total Product sales $ 50,111 $ 39,292 28 % $ 89,403 $ 68,684 30 % Per - unit gross average sales price: Natural gas (per Mcf) $ (0.26) $ 1.25 (121) % $ 0.51 $ 1.53 (67) % NGLs (per Bbl) 28.06 30.93 (9) % 29.39 26.17 12 % Natural-gas sales Natural - gas sales increased by $5.7 million for the three months ended June 30, 2024, primarily due to an increase of $4.5 million at the DJ Basin complex as a result of increased volumes sold. Natural - gas sales increased by $2.1 million for the six months ended June 30, 2024, primarily due to an increase of $3.4 million at the DJ Basin complex as a result of changes in contract mix during 2024. NGLs sales NGLs sales increased by $5.1 million for the three months ended June 30, 2024, primarily due to an increase of $10.9 million at the DJ Basin complex due to contract mix and increased volumes sold, partially offset by decreased average prices. This increase was offset partially by decreases of (i) $2.2 million at the DBM water systems due to decreased skim-oil volumes and (ii) $1.6 million at the Granger complex. NGLs sales increased by $18.6 million for the six months ended June 30, 2024, primarily due to increases of (i) $14.1 million at the Powder River Basin complex attributable to the acquisition of Meritage, (ii) $3.3 million at the DBM water systems due to increased skim-oil prices, (iii) $2.6 million at the DJ Basin complex due to increased volumes sold, partially offset by decreased average prices, and (iv) $2.1 million at the Granger complex. These increases were offset partially by a decrease of $5.3 million at the West Texas complex due to decreased average prices, partially offset by increased volumes. Equity Income, Net – Related Parties Three Months Ended Six Months Ended thousands except percentages June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Equity income, net – related parties $ 27,431 $ 32,819 (16) % $ 60,250 $ 81,345 (26) % Equity income, net – related parties decreased by $5.4 million for the three months ended June 30, 2024, primarily due to the sale of several equity investments to third parties in the first quarter of 2024, see Note 3—Acquisitions and Divestitures . Equity income, net – related parties decreased by $21.1 million for the six months ended June 30, 2024, primarily due to decreases of (i) $19.5 million resulting from the sale of several equity investments to third parties in the first quarter of 2024 and (ii) $4.9 million at TEP. See Note 3—Acquisitions and Divestitures . 42 Table of Contents Cost of Product and Operation and Maintenance Expenses Three Months Ended Six Months Ended thousands except percentages June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Residue purchases $ 85 $ 9,228 (99) % $ 9,313 $ 21,704 (57) % NGLs purchases 67,574 70,425 (4) % 137,999 100,771 37 % Other (13,649) (33,574) 59 % (47,223) (26,270) (80) % Cost of product 54,010 46,079 17 % 100,089 96,205 4 % Operation and maintenance 223,319 194,939 15 % 418,258 357,670 17 % Total Cost of product and Operation and maintenance expenses $ 277,329 $ 241,018 15 % $ 518,347 $ 453,875 14 % Residue purchases Residue purchases decreased by $9.1 million for the three months ended June 30, 2024, primarily due to the contract mix of product-related electricity purchases and lower average prices at the West Texas complex. Residue purchases decreased by $12.4 million for the six months ended June 30, 2024, primarily due to decreases of (i) $7.5 million at the West Texas complex due to the contract mix of product-related electricity purchases and lower average prices and (ii) $4.9 million at the Granger complex due to a contract expiration in the fourth quarter of 2023. NGLs purchases NGLs purchases decreased by $2.9 million for the three months ended June 30, 2024, primarily due to decreases of (i) $4.5 million at the West Texas complex attributable to lower average prices and volumes purchased and changes in line-fill inventory, and (ii) $1.8 million at the DBM water systems due to decreased skim-oil volumes. These decreases were offset partially by an increase of $6.0 million at the DJ Basin complex primarily due to increased volumes purchased and changes in line-fill inventory. NGLs purchases increased by $37.2 million for the six months ended June 30, 2024, primarily due to increases of (i) $30.3 million at the West Texas complex primarily attributable to increased volumes purchased, (ii) $3.3 million at the DBM water systems due to increased skim-oil volumes and average prices, and (iii) $2.6 million at the Powder River Basin complex attributable to the acquisition of Meritage. Other items Other items increased by $19.9 million for the three months ended June 30, 2024, primarily due to increases of $9.3 million at the DJ Basin complex, $6.0 million at the West Texas complex, and $3.6 million at the Powder River Basin complex, attributable to changes in imbalance positions. Other items decreased by $21.0 million for the six months ended June 30, 2024, primarily due to a decrease of $26.3 million at the West Texas complex due to changes in imbalance positions, partially offset by an increase of $5.8 million at the Powder River Basin complex attributable to the acquisition of Meritage and changes in imbalance positions. Operation and maintenance expense Operation and maintenance expense increased by $28.4 million for the three months ended June 30, 2024, primarily due to increases of (i) $11.1 million in equipment, materials, maintenance, and repair costs, (ii) $7.0 million in utility expense, (iii) $3.8 million in mechanical-integrity costs, and (iv) $3.0 million in contract labor and consulting expense. Operation and maintenance expense increased by $60.6 million for the six months ended June 30, 2024, primarily due to increases of (i) $18.3 million in salaries and wages costs, (ii) $10.7 million in equipment, materials, maintenance, and repair costs, (iii) $9.6 million in utility expense, (iv) $7.6 million in chemical and treating services, (v) $6.3 million in equipment rental costs, (vi) $5.6 million in land-related costs, and (vii) $4.2 million in water-disposal costs. 43 Table of Contents Other Operating Expenses Three Months Ended Six Months Ended thousands except percentages June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) General and administrative $ 62,933 $ 67,839 (7) % $ 130,772 $ 104,522 25 % Property and other taxes 17,429 13,920 25 % 31,349 25,378 24 % Depreciation and amortization 163,432 157,991 3 % 321,423 288,118 12 % Long - lived asset and other impairments 1,530 23 NM 1,553 52,635 (97) % Total other operating expenses $ 245,324 $ 239,773 2 % $ 485,097 $ 470,653 3 % General and administrative expenses General and administrative expenses decreased by $4.9 million for the three months ended June 30, 2024, primarily due to a decrease in personnel costs. General and administrative expenses increased by $26.3 million for the six months ended June 30, 2024, primarily due to increases of (i) $14.0 million in personnel costs and (ii) $8.2 million in information technology costs. Property and other taxes Property and other taxes increased by $3.5 million for the three months ended June 30, 2024, primarily due to a lower ad valorem property tax accrual recorded during the first quarter of 2024 related to the finalization of 2023 assessments at the DJ Basin complex. Property and other taxes increased by $6.0 million for the six months ended June 30, 2024, 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 increased by $5.4 million for the three months ended June 30, 2024, primarily due to capital projects being placed into service at the West Texas complex. Depreciation and amortization expense increased by $33.3 million for the six months ended June 30, 2024, primarily due to increases of (i) $31.1 million at the Powder River Basin complex attributable to the acquisition of Meritage and (ii) $10.8 million and $5.0 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 $10.1 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 six months ended June 30, 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. 44 Table of Contents Interest Expense Three Months Ended Six Months Ended thousands except percentages June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Long - term and short - term debt $ (88,850) $ (95,956) (7) % $ (184,806) $ (166,239) 11 % Finance lease liabilities (655) (677) (3) % (1,332) (393) NM Commitment fees and amortization of debt-related costs (3,485) (3,200) 9 % (6,685) (6,295) 6 % Capitalized interest 2,468 5,327 (54) % 7,795 5,075 54 % Interest expense $ (90,522) $ (94,506) (4) % $ (185,028) $ (167,852) 10 % Interest expense decreased by $4.0 million for the three months ended June 30, 2024, primarily due to decreases of (i) $5.7 million resulting from lower outstanding borrowings under the commercial paper program during the second quarter of 2024 and (ii) $1.4 million due to credit-rating related interest-rate changes and lower outstanding balances on certain senior notes due to debt repurchases. These decreases were offset partially by $2.9 million due to lower capitalized interest. Interest expense increased by $17.2 million for the six months ended June 30, 2024, primarily due to increases of (i) $19.6 million of interest incurred on the 6.350% Senior Notes due 2029 that were issued during the third quarter of 2023, (ii) $12.1 million of interest incurred on the 6.150% Senior Notes due 2033 that were issued during the second 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) $10.5 million due to credit-rating related interest-rate changes and lower outstanding balances on certain senior notes due to debt repurchases, (ii) $7.5 million due to no outstanding borrowings under the RCF during 2024, and (iii) $2.7 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. 45 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 our 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. 46 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 Six Months Ended thousands June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Reconciliation of Gross margin to Adjusted gross margin Total revenues and other $ 905,629 $ 887,729 $ 1,793,358 $ 1,472,255 Less: Cost of product 54,010 46,079 100,089 96,205 Depreciation and amortization 163,432 157,991 321,423 288,118 Gross margin 688,187 683,659 1,371,846 1,087,932 Add: Distributions from equity investments 32,970 48,337 81,307 106,050 Depreciation and amortization 163,432 157,991 321,423 288,118 Less: Reimbursed electricity-related charges recorded as revenues 28,998 24,695 53,693 46,855 Adjusted gross margin attributable to noncontrolling interests (1) 19,741 20,240 39,981 32,688 Adjusted gross margin $ 835,850 $ 845,052 $ 1,680,902 $ 1,402,557 _________________________________________________________________________________________ (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. 47 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 Six Months Ended thousands except per-unit amounts June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Gross margin Gross margin for natural - gas assets (1) $ 516,253 $ 511,584 $ 1,027,837 $ 803,307 Gross margin for crude - oil and NGLs assets (1) 96,786 93,578 190,364 177,305 Gross margin for produced - water assets (1) 82,346 85,041 167,387 118,679 Per - Mcf Gross margin for natural - gas assets (2) 1.10 1.09 1.09 1.02 Per - Bbl Gross margin for crude - oil and NGLs assets (2) 2.02 1.78 1.90 1.55 Per - Bbl Gross margin for produced - water assets (2) 0.82 0.81 0.82 0.68 Adjusted gross margin Adjusted gross margin for natural - gas assets $ 601,443 $ 597,163 $ 1,198,606 $ 969,485 Adjusted gross margin for crude - oil and NGLs assets 138,894 150,269 289,163 292,613 Adjusted gross margin for produced - water assets 95,513 97,620 193,133 140,459 Per - Mcf Adjusted gross margin for natural - gas assets (3) 1.33 1.32 1.32 1.28 Per - Bbl Adjusted gross margin for crude - oil and NGLs assets (3) 2.96 2.92 2.94 2.61 Per - Bbl Adjusted gross margin for produced - water assets (3) 0.97 0.95 0.96 0.82 _________________________________________________________________________________________ (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. 48 Table of Contents Three Months Ended Six Months Ended thousands June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Reconciliation of Net income (loss) to Adjusted EBITDA Net income (loss) $ 387,564 $ 586,216 $ 973,780 $ 467,857 Add: Distributions from equity investments 32,970 48,337 81,307 106,050 Non - cash equity - based compensation expense 10,391 9,423 19,814 14,864 Interest expense 90,522 94,506 185,028 167,852 Income tax expense 755 1,522 2,277 2,075 Depreciation and amortization 163,432 157,991 321,423 288,118 Impairments 1,530 23 1,553 52,635 Other expense 37 112 149 399 Less: Gain (loss) on divestiture and other, net 59,342 239,617 298,959 (2,188) Gain (loss) on early extinguishment of debt 4,879 524 5,403 6,813 Equity income, net – related parties 27,431 32,819 60,250 81,345 Other income 4,213 2,346 6,559 4,087 Adjusted EBITDA attributable to noncontrolling interests (1) 13,276 14,415 27,691 22,752 Adjusted EBITDA $ 578,060 $ 608,409 $ 1,186,469 $ 987,041 Reconciliation of Net cash provided by operating activities to Adjusted EBITDA Net cash provided by operating activities $ 631,418 $ 399,708 $ 1,031,126 $ 793,247 Interest (income) expense, net 90,522 94,506 185,028 167,852 Accretion and amortization of long - term obligations, net (2,473) (2,190) (4,663) (4,095) Current income tax expense (benefit) 726 1,292 2,018 1,220 Other (income) expense, net (4,213) (2,346) (6,559) (4,087) Distributions from equity investments in excess of cumulative earnings – related parties 5,270 19,033 24,303 23,179 Changes in assets and liabilities: Accounts receivable, net (28,436) 53,714 25,278 (41) Accounts and imbalance payables and accrued liabilities, net (13,338) 100,383 87,045 99,575 Other items, net (88,140) (41,276) (129,416) (67,057) Adjusted EBITDA attributable to noncontrolling interests (1) (13,276) (14,415) (27,691) (22,752) Adjusted EBITDA $ 578,060 $ 608,409 $ 1,186,469 $ 987,041 Cash flow information Net cash provided by operating activities $ 631,418 $ 399,708 $ 1,031,126 $ 793,247 Net cash provided by (used in) investing activities (14,995) 396,849 381,854 (330,668) Net cash provided by (used in) financing activities (567,550) (774,098) (1,341,648) (535,282) _________________________________________________________________________________________ (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. 49 Table of Contents Three Months Ended Six Months Ended thousands June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Reconciliation of Net cash provided by operating activities to Free cash flow Net cash provided by operating activities $ 631,418 $ 399,708 $ 1,031,126 $ 793,247 Less: Capital expenditures 211,864 193,789 405,653 334,570 Contributions to equity investments – related parties — — — 132 Add: Distributions from equity investments in excess of cumulative earnings – related parties 5,270 19,033 24,303 23,179 Free cash flow $ 424,824 $ 224,952 $ 649,776 $ 481,724 Cash flow information Net cash provided by operating activities $ 631,418 $ 399,708 $ 1,031,126 $ 793,247 Net cash provided by (used in) investing activities (14,995) 396,849 381,854 (330,668) Net cash provided by (used in) financing activities (567,550) (774,098) (1,341,648) (535,282) 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 $4.5 million for the three months ended June 30, 2024, primarily due to a $17.9 million increase in total revenues and other. This increase was offset partially by (i) a $7.9 million increase in cost of product and (ii) a $5.4 million increase in depreciation and amortization. Gross margin increased by $283.9 million for the six months ended June 30, 2024, primarily due to a $321.1 million increase in total revenues and other. This increase was offset partially by (i) a $33.3 million increase in depreciation and amortization and (ii) a $3.9 million increase in cost of product. 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) decreased by $198.7 million for the three months ended June 30, 2024, primarily due to (i) a $180.3 million decrease in gain (loss) on divestiture and other, net and (ii) a $41.9 million increase in total operating expenses. These amounts were offset partially by a $17.9 million increase in total revenues and other. Net income (loss) increased by $505.9 million for the six months ended June 30, 2024, primarily due to (i) a $321.1 million increase in total revenues and other and (ii) a $301.1 million increase in gain (loss) on divestiture and other, net. These amounts were offset partially by (i) a $78.9 million increase in total operating expenses, (ii) a $21.1 million decrease in equity income, net – related parties, and (iii) a $17.2 million increase in interest expense. 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. 50 Table of Contents KEY PERFORMANCE METRICS Three Months Ended Six Months Ended thousands except percentages and per-unit amounts June 30, 2024 March 31, 2024 Inc/ (Dec) June 30, 2024 June 30, 2023 Inc/ (Dec) Adjusted gross margin $ 835,850 $ 845,052 (1) % $ 1,680,902 $ 1,402,557 20 % Per - Mcf Adjusted gross margin for natural - gas assets (1) 1.33 1.32 1 % 1.32 1.28 3 % Per - Bbl Adjusted gross margin for crude - oil and NGLs assets (1) 2.96 2.92 1 % 2.94 2.61 13 % Per - Bbl Adjusted gross margin for produced - water assets (1) 0.97 0.95 2 % 0.96 0.82 17 % Adjusted EBITDA 578,060 608,409 (5) % 1,186,469 987,041 20 % Free cash flow 424,824 224,952 89 % 649,776 481,724 35 % _________________________________________________________________________________________ (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 decreased by $9.2 million for the three months ended June 30, 2024, primarily due to (i) the sale of our interests in the Marcellus Interest systems, Saddlehorn, Mont Belvieu JV, Whitethorn LLC, and Panola during 2024, (ii) decreases at the Granger complex, and (iii) decreased skim-oil volumes at the DBM water systems. These decreases were offset partially by (i) increased throughput, partially offset by decreased deficiency fees, at the West Texas and DJ Basin complexes and (ii) increased throughput at the DBM oil system. Adjusted gross margin increased by $278.3 million for the six months ended June 30, 2024, 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) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024 at the DBM water and DBM oil 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, partially offset by increased throughput, (ii) decreased distributions from TEP, and (iii) the sale of our interests in Mont Belvieu JV, Saddlehorn, and the Marcellus Interest systems during 2024. Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.04 for the six months ended June 30, 2024, 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. Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.04 for the three months ended June 30, 2024, primarily due to (i) the sale of our interests in Whitethorn LLC and Saddlehorn in the first quarter of 2024, both of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets and (ii) increased throughput at the DBM oil system. These increases were offset partially by decreased distributions from Mont Belvieu JV due to the sale of our interest in the first quarter of 2024. Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.33 for the six months ended June 30, 2024, primarily due to the sale of our interests in Mont Belvieu JV, Saddlehorn, and Whitethorn LLC 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. This increase was offset partially by (i) a decrease in distributions from TEP and (ii) decreased revenues associated with demand volumes at the DJ Basin oil system. Per - Bbl Adjusted gross margin for produced - water assets increased by $0.14 for the six months ended June 30, 2024, primarily due to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024. 51 Table of Contents Adjusted EBITDA. Adjusted EBITDA decreased by $30.3 million for the three months ended June 30, 2024, primarily due to (i) a $28.4 million increase in operation and maintenance expenses, (ii) a $15.4 million decrease in distributions from equity investments, (iii) an $8.0 million increase in cost of product (net of lower of cost or market inventory adjustments), and (iv) a $3.5 million increase in property taxes. These amounts were offset partially by (i) a $17.9 million increase in total revenues and other and (ii) a $5.9 million decrease in general and administrative expenses excluding non - cash equity - based compensation expense. Adjusted EBITDA increased by $199.4 million for the six months ended June 30, 2024, primarily due to a $321.1 million increase in total revenues and other. This was offset partially by (i) a $60.6 million increase in operation and maintenance expenses, (ii) a $24.7 million decrease in distributions from equity investments, (iii) a $21.3 million increase in general and administrative expenses excluding non - cash equity - based compensation expense, (iv) a $6.0 million increase in property and other taxes, and (v) a $4.1 million increase in cost of product (net of lower of cost or market inventory adjustments). Free cash flow. Free cash flow increased by $199.9 million for the three months ended June 30, 2024, primarily due to a $231.7 million increase in net cash provided by operating activities, partially offset by (i) an $18.1 million increase in capital expenditures and (ii) a $13.8 million decrease in distributions from equity investments in excess of cumulative earnings. Free cash flow increased by $168.1 million for the six months ended June 30, 2024, primarily due to a $237.9 million increase in net cash provided by operating activities, partially offset by a $71.1 million increase in capital expenditures. See Capital Expenditures and Historical Cash Flow within this Item 2 for further information. 52 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 June 30, 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 second quarter of 2024 of $0.875 per unit, or $340.9 million in the aggregate. The cash distribution is payable on August 14, 2024, to our unitholders of record at the close of business on August 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 six months ended June 30, 2024, there were no common units repurchased. As of June 30, 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. 53 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 June 30, 2024, we had a $434.2 million working capital surplus, which we define as the amount by which current assets exceed current liabilities. As of June 30, 2024, there was $2.0 billion in effective borrowing capacity under the RCF. Any outstanding commercial paper borrowings reduce the effective borrowing capacity under the RCF as WES Operating maintains availability under the RCF as support for its 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: Six Months Ended June 30, thousands 2024 2023 Acquisitions $ 443 $ — Capital expenditures (1) 405,653 334,570 Capital incurred (1) 422,185 368,683 _________________________________________________________________________________________ (1) For the six months ended June 30, 2024 and 2023, included $7.8 million and $5.1 million, respectively, of capitalized interest. Capital expenditures increased by $71.1 million for the six months ended June 30, 2024, primarily due to increases of (i) $69.4 million at the West Texas complex, primarily attributable to engineering and equipment milestone payments for the North Loving Plant, (ii) $18.2 million at the Powder River Basin complex primarily attributable to the acquisition of Meritage, (iii) $10.9 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) $6.1 million in corporate-level capital expenditures. These increases were offset partially by decreases of (i) $21.2 million at the DBM oil system related to a decrease in pipeline, oil treating, and oil pumping projects and (ii) $17.6 million at the DBM water systems due to reduced construction of water - disposal wells and facilities and well-connect projects. 54 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: Six Months Ended June 30, thousands 2024 2023 Net cash provided by (used in): Operating activities $ 1,031,126 $ 793,247 Investing activities 381,854 (330,668) Financing activities (1,341,648) (535,282) Net increase (decrease) in cash and cash equivalents $ 71,332 $ (72,703) Operating activities . Net cash provided by operating activities increased for the six months ended June 30, 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 six months ended June 30, 2024, primarily included the following: • $582.7 million of proceeds related to the sale of several equity investments to third parties; • $206.2 million of proceeds related to the sale of our 33.75% interest in the Marcellus Interest systems to a third party; • $24.3 million of distributions received from equity investments in excess of cumulative earnings; • $405.7 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 • $25.3 million of increases to materials and supplies inventory. Net cash used in investing activities for the six months ended June 30, 2023, primarily included the following: • $334.6 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; • $19.1 million of increases to materials and supplies inventory; and • $23.2 million of distributions received from equity investments in excess of cumulative earnings Financing activities . Net cash used in financing activities for the six months ended June 30, 2024, primarily included the following: • $610.3 million of net repayments under the commercial paper program; • $577.5 million of distributions paid to WES unitholders and noncontrolling interest owners; and • $143.9 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 six months ended June 30, 2023, primarily included the following: • $595.0 million of repayments of outstanding borrowings under the RCF; • $548.2 million of distributions paid to WES unitholders and noncontrolling interest owners; 55 Table of Contents • $213.1 million to redeem the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value; • $110.2 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases; • $7.1 million of unit repurchases; • $740.9 million of net proceeds from the 6.150% Senior Notes due 2033 issued in April 2023, which were used to repay borrowings under the RCF and for general partnership purposes; and • $220.0 million of borrowings under the RCF, which were used for general partnership purposes. Debt and credit facilities. As of June 30, 2024, the carrying value of outstanding debt was $7.1 billion and we have $2.0 billion in effective borrowing capacity under WES Operating’s $2.0 billion RCF. Any outstanding commercial paper borrowings reduce the effective borrowing capacity under the RCF as WES Operating maintains availability under the RCF as support for its commercial paper program. During the six months ended June 30, 2024, WES Operating (i) purchased and retired $150.0 million of certain of its senior notes via open-market repurchases with cash from operations and a gain of $5.4 million was recognized for the early retirement of portions of these notes and (ii) entered into an amendment to the RCF to exercise an option to extend the maturity date of the RCF from April 2028 to April 2029, for each extending lender. As of June 30, 2024, the 3.100% Senior Notes due 2025 and 3.950% Senior Notes due 2025 were classified as long-term debt on the consolidated balance sheet as WES Operating has the ability and intent to refinance these obligations using long-term debt. 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. 56 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 Six Months Ended thousands June 30, 2024 March 31, 2024 June 30, 2024 June 30, 2023 Net income (loss) attributable to WES $ 378,648 $ 572,830 $ 951,478 $ 456,566 Limited partner interest in WES Operating not held by WES (1) 7,747 11,700 19,447 9,346 General and administrative expenses (2) 932 360 1,292 1,418 Other income (expense), net (68) (59) (127) (154) Net income (loss) attributable to WES Operating $ 387,259 $ 584,831 $ 972,090 $ 467,176 _________________________________________________________________________________________ (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: Six Months Ended June 30, thousands 2024 2023 WES net cash provided by operating activities $ 1,031,126 $ 793,247 General and administrative expenses (1) 1,292 1,418 Non - cash equity - based compensation expense (289) (287) Changes in working capital (22,497) (14,327) Other income (expense), net (127) (154) WES Operating net cash provided by operating activities $ 1,009,505 $ 779,897 WES net cash provided by (used in) financing activities $ (1,341,648) $ (535,282) Distributions to WES unitholders (2) 564,296 533,556 Distributions to WES from WES Operating (3) (565,575) (545,277) Increase (decrease) in outstanding checks 36 — Unit repurchases — 7,102 Other 21,195 13,415 WES Operating net cash provided by (used in) financing activities $ (1,321,696) $ (526,486) _________________________________________________________________________________________ (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. 57 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.