Western Midstream Partners, Lp ((WES)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Western Midstream Partners struck an overall upbeat tone in its latest earnings call, underscoring record adjusted EBITDA and free cash flow alongside a smooth integration of the Aris acquisition. Management balanced this optimism with candor about headwinds from weaker producer activity, soft Waha gas prices, and basin declines that will weigh on margins and free cash flow in 2026.
Record Earnings Power and Outperformance Versus Guidance
Western Midstream posted fourth-quarter adjusted EBITDA of $636 million, or about $665 million excluding nearly $30 million of noncash revenue adjustments, translating to roughly 5% sequential growth on an adjusted basis. For full-year 2025, adjusted EBITDA reached $2.48 billion, up about 6% year over year and above the midpoint of prior guidance, signaling resilient earnings power despite market volatility.
Free Cash Flow Hits New Highs on Solid Operations
The partnership generated record free cash flow of $1.53 billion in 2025, surpassing the top end of its outlook and underscoring strong cash generation from the asset base. In the fourth quarter alone, free cash flow was $341 million, backed by $558 million of cash flow from operations, reinforcing the company’s ability to self-fund growth while supporting distributions.
Broad-Based Throughput Growth with Standout Water Volumes
Throughput increased across all major product streams in 2025, with natural gas volumes averaging 5.2 Bcf per day, up 4% year over year, and crude oil plus NGL volumes up 1% at 514,000 barrels per day. Produced water was the clear growth engine, averaging 1.6 million barrels per day, up 40% year over year including the Aris contribution, and rising 121% sequentially in the fourth quarter.
Aris Deal Proves Accretive and Ahead of Plan
Management highlighted the Aris Water Solutions acquisition as a key strategic win, significantly expanding Western’s produced water footprint and deepening its position in New Mexico. Integration is largely complete and ahead of schedule, with targeted cost synergies of $40 million and roughly 85% of those savings expected to be realized by the end of the first quarter of 2026.
Cost Discipline Drives Ongoing Efficiency Improvements
Excluding Aris and reimbursable utility costs, operations and maintenance expense on an annualized basis fell by more than $100 million from the first to the fourth quarter of 2025, reflecting a multi-quarter efficiency push. Legacy O&M and G&A costs continue to trend lower, while cash G&A excluding acquisition-related items held roughly flat year over year at about $235 million, underscoring tight cost control.
Capex Discipline and Rapid Adjustment to Activity Changes
Capital expenditures for 2025 totaled $722 million, landing within guidance and demonstrating measured investment in growth projects. For 2026, the company reduced its expansion capex midpoint to $925 million from prior guidance of at least $1.1 billion, showing its ability to quickly scale spending in response to softer producer activity.
Balance Sheet Strength Supports Steady Capital Returns
Western kept net leverage around 3 times during 2025, even after financing the Aris acquisition, leaving balance sheet capacity for future cycles. The partnership declared a $0.91 per unit distribution for the first quarter and plans a modest $0.02 per unit annual increase for 2026, targeting at least $3.70 per unit for the full year, or about 3% growth.
Key Processing and Pipeline Projects Extend Growth Runway
The North Loving Train I processing plant was completed ahead of schedule and under budget, adding about 250 million cubic feet per day of capacity and lifting total processing capacity to roughly 2.2 Bcf per day. Western also sanctioned the Pathfinder pipeline and North Loving Train II, which is expected online in early second quarter 2027, providing a visible medium-term growth platform.
Producer Pullbacks Weigh on 2026 Volume Outlook
Producers on Western’s systems, including Occidental, have signaled reduced activity levels or acreage reallocations, tempering near-term growth expectations. As a result, the partnership expects 2026 natural gas throughput to be roughly flat year over year, while crude oil and NGL volumes are projected to decline by low- to mid-single digits.
Waha Pricing Volatility Drives Curtailments and Volume Risk
Persistently low and volatile pricing at the Waha hub led to third-party gas curtailments in the fourth quarter, with intermittent impacts continuing into early 2026 and hitting Delaware Basin throughput. Management anticipates that pricing pressure and associated curtailments will likely persist at least through the first half of 2026, until new takeaway capacity comes online.
Noncash Adjustments and Deal Costs Cloud Quarterly Optics
Fourth-quarter results included roughly $29.5 to $30 million of unfavorable noncash revenue recognition adjustments tied to redetermined cost-of-service rates, temporarily depressing reported revenue. In addition, about $120 million of Aris-related transaction costs weighed on net income but were added back to adjusted EBITDA, helping investors better assess underlying performance.
Margin Compression Across Segments Signals Near-Term Pressure
Per-unit profitability slipped sequentially in the fourth quarter, with natural gas adjusted gross margin per Mcf down $0.01 and crude oil plus NGL margins down $0.33 per barrel, partly due to the noncash revenue items. Produced water margins declined by $0.11 per barrel, and the company now expects 2026 natural gas adjusted gross margin to average about $1.22 per Mcf, implying some ongoing pressure.
Reported Opex and G&A Rise with Aris Integration
On a reported basis, fourth-quarter O&M increased 19% sequentially, driven mostly by the addition of 2.5 months of Aris operations, and full-year 2026 O&M is expected to grow 10% to 15% including Aris. G&A also moved higher quarter over quarter, reflecting acquisition-related transaction costs and increased personnel expenses, even as the legacy cost base improves.
Basin Headwinds in DJ and Powder River
The DJ Basin is expected to see mid- to high-single-digit volume declines in 2026 for both natural gas and crude plus NGLs, reflecting softer activity and natural decline. In the Powder River, natural gas throughput is projected to fall 10% to 15% given the basin’s commodity sensitivity, although management sees potential for rigs and volumes to return in 2027 if conditions improve.
Free Cash Flow Reset as Growth Spending Ramps
Western’s 2026 free cash flow guidance of $900 million to $1.1 billion, with a midpoint of $1.0 billion, marks a significant step down from the $1.53 billion delivered in 2025. The roughly 34% decline at the midpoint is driven mainly by elevated expansion spending on projects like Pathfinder and North Loving II, combined with near-term volume and margin headwinds.
Conservative Distribution Strategy Builds Coverage Cushion
Management emphasized a cautious approach to capital returns, electing only a modest $0.02 per unit distribution increase despite record 2025 cash generation. The stated goal is to grow distributions slightly slower than EBITDA over time, gradually strengthening coverage and preserving financial flexibility amid uncertain activity and commodity conditions.
Guidance and Outlook Emphasize Steady Growth and Discipline
For 2026, Western Midstream guided to adjusted EBITDA of $2.5 billion to $2.7 billion, with a midpoint of $2.6 billion representing about 5% growth year over year, alongside $850 million to $1.0 billion in capex concentrated on Pathfinder and North Loving II. The company expects distributable cash flow of $1.85 billion to $2.05 billion and free cash flow of $900 million to $1.1 billion, while maintaining roughly 3 times leverage and planning a slight distribution increase.
Western Midstream’s latest earnings call painted a picture of a midstream operator delivering record cash generation and executing a major acquisition cleanly, yet bracing for a tougher near-term backdrop. With disciplined capex, a strong balance sheet, and conservative payout strategy, management is leaning on efficiency gains and long-lived assets to navigate 2026 headwinds and sustain modest earnings growth.