# Western Midstream Partners, LP: Form 10-Q for the period ended Sep 30, 2023

- Company: [Western Midstream Partners, LP](/companies/wes.md) (CIK 1423902)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 16:21 ET
- Period: 2023-09-30
- Accession: 0001423902-23-000065
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1423902/000142390223000065/wes-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1423902/000142390223000065/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $775.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $2.25bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $360.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $987.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $82.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $250.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $905.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $277.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $733.9m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $1.19bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $755.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $134.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $489.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $1.14bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $11.63bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $635.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $8.67bn | us-gaap:Liabilities |

## Management's discussion and analysis

As filed, 86,246 characters.

*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 2022 Form 10-K as filed with the SEC on February 22, 2023.*

*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 September 30, 2023 (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:

- benefits of the Meritage acquisition;
- 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;
- 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;
- 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 2022 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.

### 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 September 30, 2023, our assets and investments consisted of the following:

|  | Wholly Owned and Operated | Operated Interests | Non-Operated Interests | Equity Interests |
| --- | ---: | ---: | ---: | ---: |
| Gathering systems (1) | 17 | 2 | 3 | 1 |
| Treating facilities | 37 | 3 | — | — |
| Natural-gas processing plants/trains | 25 | 3 | — | 3 |
| NGLs pipelines | 2 | — | — | 5 |
| Natural-gas pipelines | 6 | — | — | 1 |
| Crude-oil pipelines | 3 | 1 | — | 3 |

(1) Includes the DBM water systems.

Significant financial and operational events during the nine months ended September 30, 2023, included the following:

- WES Operating completed the public offering of $600.0 million in aggregate principal amount of 6.350% Senior Notes due 2029. Net proceeds from the offering were used to fund a portion of the aggregate purchase price for the Meritage acquisition, to pay related costs and expenses, and for general partnership purposes. See *Liquidity and Capital Resources* within this Item 2 for additional information.
- On October 13, 2023, we closed on the acquisition of Meritage for $885.0 million (subject to certain customary post-closing adjustments). See *Acquisitions and Divestitures* within this Item 2 for additional information.
- WES Operating completed the public offering of $750.0 million in aggregate principal amount of 6.150% Senior Notes due 2033. Net proceeds from this offering were used to repay borrowings under the RCF and for general partnership purposes. See *Liquidity and Capital Resources* within this Item 2 for additional information.
- WES Operating redeemed the $213.1 million total principal amount outstanding of the Floating-Rate Senior Notes due 2023 at par value with cash on hand.
- WES Operating purchased and retired $276.7 million of certain of its senior notes via open-market repurchases.
- Our third-quarter 2023 per-unit distribution of $0.5750 increased $0.0125 from the second-quarter 2023 per-unit distribution of $0.5625.
- The Board approved an Enhanced Distribution of $0.356 per unit, or $140.1 million, related to our 2022 performance. This Enhanced Distribution was paid, along with our regular first-quarter 2023 distribution, on May 15, 2023, to our unitholders of record at the close of business on May 1, 2023.
- We repurchased 5,387,322 common units, which includes 5,100,000 common units repurchased from Occidental, for an aggregate purchase price of $134.6 million.
- Natural-gas throughput attributable to WES totaled 4,484 MMcf/d and 4,283 MMcf/d for the three and nine months ended September 30, 2023, respectively, representing a 5% increase and a 2% increase compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, respectively.
- Crude-oil and NGLs throughput attributable to WES totaled 667 MBbls/d and 635 MBbls/d for the three and nine months ended September 30, 2023, respectively, representing a 7% increase and a 7% decrease compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, respectively.
- Produced-water throughput attributable to WES totaled 1,079 MBbls/d and 994 MBbls/d for the three and nine months ended September 30, 2023, respectively, representing a 14% increase and a 20% increase compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, respectively.
- Gross margin totaled $601.1 million and $1,689.0 million for the three and nine months ended September 30, 2023, respectively, representing a 9% increase and a 1% decrease compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, 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 $1.26 per Mcf and $1.27 per Mcf for the three and nine months ended September 30, 2023, respectively, representing no change compared to the three months ended June 30, 2023, and a 5% decrease compared to the nine months ended September 30, 2022.
- 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 $2.27 per Bbl and $2.49 per Bbl for the three and nine months ended September 30, 2023, respectively, representing a 12% decrease and a 2% increase compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, respectively.
- Adjusted gross margin for produced-water assets (as defined under the caption *Reconciliation of Non-GAAP Financial Measures* within this Item 2) averaged $0.84 per Bbl and $0.83 per Bbl for the three and nine months ended September 30, 2023, respectively, representing a 1% increase and a 12% decrease compared to the three months ended June 30, 2023, and nine months ended September 30, 2022, respectively.

The following table provides additional information on throughput for the periods presented below:

*Throughput for natural-gas assets (MMcf/d)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Delaware Basin | **1,674** | 1,592 | 5% | **1,612** | 1,452 | 11% |
| DJ Basin | **1,331** | 1,309 | 2% | **1,316** | 1,328 | (1)% |
| Equity investments | **495** | 454 | 9% | **458** | 490 | (7)% |
| Other | **1,151** | 1,061 | 8% | **1,053** | 1,088 | (3)% |
| Total throughput for natural-gas assets | **4,651** | 4,416 | 5% | **4,439** | 4,358 | 2% |
| **Throughput for crude-oil and NGLs assets (MBbls/d)** |  |  |  |  |  |  |
| Delaware Basin | **220** | 208 | 6% | **211** | 196 | 8% |
| DJ Basin | **68** | 66 | 3% | **68** | 84 | (19)% |
| Equity investments | **347** | 323 | 7% | **328** | 382 | (14)% |
| Other | **46** | 42 | 10% | **41** | 38 | 8% |
| Total throughput for crude-oil and NGLs assets | **681** | 639 | 7% | **648** | 700 | (7)% |
| **Throughput for produced-water assets (MBbls/d)** |  |  |  |  |  |  |
| Delaware Basin | **1,101** | 963 | 14% | **1,014** | 848 | 20% |
| Total throughput for produced-water assets | **1,101** | 963 | 14% | **1,014** | 848 | 20% |

39

### 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 2022 ranged from a high of $123.70 per barrel in March 2022 to a low of $71.02 per barrel in December 2022, and prices during the nine months ended September 30, 2023, ranged from a low of $66.74 per barrel in March 2023 to a high of $93.68 per barrel in September 2023. 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 bottlenecks and disruptions from the lingering effects of the COVID-19 crisis 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 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 increased during 2022, and have continued to increase during 2023, resulting in increased interest expense on RCF 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.

### ACQUISITIONS AND DIVESTITURES

***Meritage.*** On October 13, 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 12—Subsequent Events* and *Note 10—Debt and Interest Expense* under Part I, Item 1 of this Form 10-Q.

***Cactus II.*** In November 2022, we sold our 15.00% interest in Cactus II to two third parties for $264.8 million, which includes a $1.8 million pro-rata distribution through closing. Total proceeds were received during the fourth quarter of 2022, resulting in a net gain on sale of $109.9 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.

***Ranch Westex.*** In September 2022, we acquired the remaining 50% interest in Ranch Westex from a third party for $40.1 million. Subsequent to the acquisition, (i) we are the sole owner and operator of the asset, (ii) Ranch Westex is no longer accounted for under the equity method of accounting, and (iii) the Ranch Westex processing plant is included as part of the operations of the West Texas complex.

### RESULTS OF OPERATIONS

### OPERATING RESULTS

The following tables and discussion present a summary of our results of operations:

| thousands | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Total revenues and other (1) | **$776,013** | $738,273 | **$2,248,268** | $2,472,284 |
| **Equity income, net – related parties** | **35,494** | 42,324 | **116,839** | 139,388 |
| Total operating expenses (1) | **449,265** | 443,855 | **1,373,793** | 1,451,558 |
| **Gain (loss) on divestiture and other, net** | **(1,480)** | (70) | **(3,668)** | (884) |
| **Operating income (loss)** | **360,762** | 336,672 | **987,646** | 1,159,230 |
| Interest expense | **(82,754)** | (86,182) | **(250,606)** | (249,333) |
| Gain (loss) on early extinguishment of debt | **8,565** | 6,813 | **15,378** | 91 |
| Other income (expense), net | **(1,270)** | 2,872 | **2,817** | 117 |
| **Income (loss) before income taxes** | **285,303** | 260,175 | **755,235** | 910,105 |
| Income tax expense (benefit) | **905** | 659 | **2,980** | 3,683 |
| **Net income (loss)** | **284,398** | 259,516 | **752,255** | 906,422 |
| Net income (loss) attributable to noncontrolling interests | **7,102** | 6,595 | **18,393** | 25,643 |
| Net income (loss) attributable to Western Midstream Partners, LP (2) | **$277,296** | $252,921 | **$733,862** | $880,779 |

(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 September 30, 2023” refer to the comparison of the three months ended September 30, 2023, to the three months ended June 30, 2023; and any increases or decreases “for the nine months ended September 30, 2023” refer to the comparison of the nine months ended September 30, 2023, to the nine months ended September 30, 2022.

### Throughput

*Throughput for natural-gas assets (MMcf/d)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gathering, treating, and transportation | **457** | 395 | 16% | **407** | 411 | (1)% |
| Processing | **3,699** | 3,567 | 4% | **3,574** | 3,457 | 3% |
| Equity investments (1) | **495** | 454 | 9% | **458** | 490 | (7)% |
| Total throughput | **4,651** | 4,416 | 5% | **4,439** | 4,358 | 2% |
| Throughput attributable to noncontrolling interests (2) | **167** | 162 | 3% | **156** | 157 | (1)% |
| Total throughput attributable to WES for natural-gas assets | **4,484** | 4,254 | 5% | **4,283** | 4,201 | 2% |
| **Throughput for crude-oil and NGLs assets (MBbls/d)** |  |  |  |  |  |  |
| Gathering, treating, and transportation | **334** | 316 | 6% | **320** | 318 | 1% |
| Equity investments (1) | **347** | 323 | 7% | **328** | 382 | (14)% |
| Total throughput | **681** | 639 | 7% | **648** | 700 | (7)% |
| Throughput attributable to noncontrolling interests (2) | **14** | 13 | 8% | **13** | 14 | (7)% |
| Total throughput attributable to WES for crude-oil and NGLs assets | **667** | 626 | 7% | **635** | 686 | (7)% |
| **Throughput for produced-water assets (MBbls/d)** |  |  |  |  |  |  |
| Gathering and disposal | **1,101** | 963 | 14% | **1,014** | 848 | 20% |
| Throughput attributable to noncontrolling interests (2) | **22** | 20 | 10% | **20** | 17 | 18% |
| Total throughput attributable to WES for produced-water assets | **1,079** | 943 | 14% | **994** | 831 | 20% |

(1) Represents our share of average throughput for investments accounted for under the equity method of accounting.

(2) For all periods presented, 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 230 MMcf/d for the three months ended September 30, 2023, primarily due to (i) higher volumes at the West Texas complex, DJ Basin complex, and Marcellus Interest systems due to increased production in the area, (ii) higher volumes on the Red Bluff Express pipeline due to the addition of a new delivery point onto the pipeline, (iii) higher volumes at the Brasada complex due to downstream issues which caused volumes to be diverted away from the plant and maintenance activities in the second quarter of 2023, (iv) higher volumes at the Springfield gas-gathering system due to new third-party production, and (v) higher volumes at the MIGC system and Mi Vida plant.

Total throughput attributable to WES for natural-gas assets increased by 82 MMcf/d for the nine months ended September 30, 2023, primarily due to higher volumes at the West Texas complex due to increased production in the area. This increase was offset partially by (i) lower volumes due to production declines in the areas around the Marcellus Interest systems and DJ Basin complex, (ii) decreased volumes at the Ranch Westex plant, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition, and (iii) lower volumes due to production declines and extended winter weather conditions during the first quarter of 2023 in areas around the Granger complex.

#### Crude-oil and NGLs assets

Total throughput attributable to WES for crude-oil and NGLs assets increased by 41 MBbls/d for the three months ended September 30, 2023, primarily due to (i) higher volumes on the Whitethorn pipeline and (ii) higher volumes at the DBM oil system resulting from increased production in the area.

Total throughput attributable to WES for crude-oil and NGLs assets decreased by 51 MBbls/d for the nine months ended September 30, 2023, primarily due to (i) lower volumes on the Cactus II pipeline, which was sold in the fourth quarter of 2022, and (ii) lower volumes at the DJ Basin oil system resulting from production declines in the area. These decreases were offset partially by (i) increased volumes on the Whitethorn pipeline and (ii) higher volumes at the DBM oil system resulting from increased production in the area.

#### Produced-water assets

Total throughput attributable to WES for produced-water assets increased by 136 MBbls/d and 163 MBbls/d for the three and nine months ended September 30, 2023, respectively, due to higher production and new third-party connections brought online during 2023.

### Service Revenues

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenues – fee based | **$695,547** | $661,506 | 5% | **$2,004,920** | $1,954,105 | 3% |
| Service revenues – product based | **48,446** | 46,956 | 3% | **142,212** | 202,721 | (30)% |
| Total service revenues | **$743,993** | $708,462 | 5% | **$2,147,132** | $2,156,826 | —% |

#### Service revenues – fee based

Service revenues – fee based increased by $34.0 million for the three months ended September 30, 2023, primarily due to increases of (i) $17.8 million at the West Texas complex resulting from increased throughput, electricity-related rates billed to customers, and deficiency fees, (ii) $11.3 million at the DBM water systems due to increased throughput and higher average fees, (iii) $4.5 million at the DJ Basin complex due to increased throughput and deficiency fees, and (iv) $3.0 million at the DBM oil system due to increased throughput, partially offset by decreased deficiency fees. These increases were partially offset by a decrease of $6.5 million at the Brasada complex due to a change in contract terms effective July 1, 2023.

Service revenues – fee based increased by $50.8 million for the nine months ended September 30, 2023, primarily due to increases of (i) $74.8 million at the West Texas complex as a result of increased throughput, electricity-related rates billed to customers, and deficiency fees, (ii) $10.4 million at the DBM water systems due to increased throughput, partially offset by decreased deficiency fees, (iii) $8.9 million at the DBM oil system due to increased throughput, and (iv) $7.6 million at the DJ Basin complex due to increased deficiency fees and electricity-related rates billed to customers, partially offset by decreased throughput. These increases were partially offset by decreases of (i) $15.5 million at the DJ Basin oil system due to decreased throughput, (ii) $13.9 million at the Chipeta complex due to decreased deficiency fees, (iii) $8.5 million at the Springfield system primarily due to decreased demand-fee revenue, partially offset by increased throughput, (iv) $5.9 million at the Brasada complex due to a change in contract terms effective July 1, 2023, and (v) $5.2 million at the Marcellus Interest systems due to decreased throughput.

#### Service revenues – product based

Service revenues – product based decreased by $60.5 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $24.6 million at the West Texas complex due to decreased average prices, volumes sold, and electricity-related rates billed to customers, (ii) $13.6 million and $5.9 million at the DJ Basin complex and Hilight system, respectively, due to decreased average prices, (iii) $7.7 million and $5.1 million at the Red Desert and Granger complexes, respectively, due to decreased average prices and volumes sold, and (iv) $2.8 million at the Chipeta complex due to decreased volumes sold.

### Product Sales

*thousands except percentages and per-unit amounts*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Natural-gas sales | **$16,454** | $7,237 | 127% | **$26,466** | $101,475 | (74)% |
| NGLs sales | **15,198** | 22,422 | (32)% | **73,870** | 213,280 | (65)% |
| Total Product sales | **$31,652** | $29,659 | 7% | **$100,336** | $314,755 | (68)% |
| Per-unit gross average sales price: |  |  |  |  |  |  |
| Natural gas (per Mcf) | **$1.91** | $1.33 | 44% | **$1.67** | $6.28 | (73)% |
| NGLs (per Bbl) | **27.64** | 23.65 | 17% | **26.65** | 44.43 | (40)% |

#### Natural-gas sales

Natural-gas sales increased by $9.2 million for the three months ended September 30, 2023, primarily due to an increase of $10.1 million at the West Texas complex due to increased average prices and volumes sold.

Natural-gas sales decreased by $75.0 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $71.0 million at the West Texas complex due to decreased average prices, partially offset by higher volumes sold, and (ii) $14.3 million at the Red Desert complex due to decreased average prices and volumes sold. These decreases were partially offset by an increase of $10.3 million at the DJ Basin complex as a result of higher average prices and volumes sold.

#### NGLs sales

NGLs sales decreased by $7.2 million for the three months ended September 30, 2023, primarily due to a decrease of $13.1 million at the West Texas complex due to changes in contract mix and decreased volumes sold. This decrease was partially offset by increases of (i) $2.0 million at the DJ Basin complex due to increased average prices and (ii) $1.7 million at DBM water systems due to increased volumes sold.

NGLs sales decreased by $139.4 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $93.0 million, $21.6 million, $8.7 million, and $3.2 million at the West Texas, Chipeta, Granger, and Red Desert complexes, respectively, due to decreased average prices and volumes sold, and (ii) $7.5 million at the Brasada complex due to a contract expiration in the third quarter of 2022.

### Equity Income, Net – Related Parties

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Equity income, net – related parties | **$35,494** | $42,324 | (16)% | **$116,839** | $139,388 | (16)% |

Equity income, net – related parties decreased by $6.8 million for the three months ended September 30, 2023, primarily due to decreases of $4.8 million and $2.1 million at Mont Belvieu JV and TEG, respectively.

Equity income, net – related parties decreased by $22.5 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $10.9 million at Cactus II due to the divestiture of our interest in the fourth quarter of 2022 (see *Acquisitions and Divestitures* within this Item 2), (ii) $5.1 million and $3.9 million at Mont Belvieu JV and TEP, respectively, and (iii) $3.4 million at Ranch Westex, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition (see *Acquisitions and Divestitures* within this Item 2).

### Cost of Product and Operation and Maintenance Expenses

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residue purchases | **$2,880** | $6,066 | (53)% | **$24,584** | $142,959 | (83)% |
| NGLs purchases | **50,394** | 48,942 | 3% | **151,165** | 263,014 | (43)% |
| Other | **(25,684)** | (10,262) | (150)% | **(51,954)** | (77,736) | 33% |
| Cost of product | **27,590** | 44,746 | (38)% | **123,795** | 328,237 | (62)% |
| Operation and maintenance | **204,434** | 183,431 | 11% | **562,104** | 487,643 | 15% |
| Total Cost of product and Operation and maintenance expenses | **$232,024** | $228,177 | 2% | **$685,899** | $815,880 | (16)% |

#### Residue purchases

Residue purchases decreased by $118.4 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $75.0 million at the West Texas complex attributable to changes in contract mix during 2022 and lower average prices, (ii) $14.9 million and $12.2 million at the Chipeta and Red Desert complexes, respectively, due to decreased volumes purchased and lower average prices, and (iii) $9.0 million at the DJ Basin complex primarily due to lower average prices.

#### NGLs purchases

NGLs purchases decreased by $111.8 million for the nine months ended September 30, 2023, primarily due to decreases of (i) $66.8 million, $5.2 million, and $5.2 million at the West Texas, Chipeta, and Granger complexes, respectively, primarily due to lower average prices and volumes purchased, (ii) $23.1 million at the DJ Basin complex due to lower average prices, and (iii) $7.7 million at the Brasada complex due to a contract expiration in the third quarter of 2022.

#### Other items

Other items decreased by $15.4 million for the three months ended September 30, 2023, primarily due to decreases of (i) $12.0 million at the West Texas complex due to changes in imbalance positions, partially offset by higher electricity-related costs, and (ii) $3.8 million at the DJ Basin complex due to changes in imbalance positions.

Other items increased by $25.8 million for the nine months ended September 30, 2023, primarily due to an increase of $39.5 million at the DJ Basin complex due to changes in imbalance positions. This increase was partially offset by decreases of (i) $6.2 million at the West Texas complex due to changes in imbalance positions, partially offset by higher electricity-related and offload costs, and (ii) $3.7 million and $1.9 million at the Red Desert complex and MIGC system, respectively, attributable to changes in imbalance positions.

#### Operation and maintenance expense

Operation and maintenance expense increased by $21.0 million for the three months ended September 30, 2023, primarily due to increases of (i) $14.1 million in utility expense, (ii) $3.7 million for maintenance and repair expense, and (iii) $2.8 million attributable to higher contract labor and consulting expense.

Operation and maintenance expense increased by $74.5 million for the nine months ended September 30, 2023, primarily due to increases of (i) $27.9 million for maintenance and repair expense, (ii) $19.5 million for salaries and wages costs, (iii) $7.5 million in utility expense, (iv) $5.5 million in land-related costs, (v) $4.8 million attributable to higher contract labor and consulting expense, (vi) $4.6 million in water-disposal costs, and (vii) $3.6 million in higher equipment rental costs.

### Other Operating Expenses

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | **$55,050** | $53,405 | 3% | **$159,572** | $144,635 | 10% |
| Property and other taxes | **14,583** | 18,547 | (21)% | **39,961** | 60,494 | (34)% |
| Depreciation and amortization | **147,363** | 143,492 | 3% | **435,481** | 430,455 | 1% |
| Long-lived asset and other impairments | **245** | 234 | 5% | **52,880** | 94 | NM |
| Total other operating expenses | **$217,241** | $215,678 | 1% | **$687,894** | $635,678 | 8% |

NM—Not meaningful

#### General and administrative expenses

General and administrative expenses increased by $14.9 million for the nine months ended September 30, 2023, primarily due to increases of (i) $6.3 million in corporate-related costs, primarily related to information technology costs, (ii) $3.9 million in personnel costs, and (iii) $3.2 million in contract and consulting costs.

#### Property and other taxes

Property and other taxes decreased by $4.0 million for the three months ended September 30, 2023, primarily due to lower property tax values at the DJ Basin and West Texas complexes.

Property and other taxes decreased by $20.5 million for the nine months ended September 30, 2023, primarily due to decreases in the ad valorem property tax accrual during 2023 related to the finalization of 2022 assessments at the DJ Basin complex.

#### Depreciation and amortization expense

Depreciation and amortization expense increased by $3.9 million for the three months ended September 30, 2023, primarily resulting from capital projects being placed into service and asset retirement obligation revisions at the West Texas complex and DBM water systems.

Depreciation and amortization expense increased by $5.0 million for the nine months ended September 30, 2023, primarily due to increases of (i) $8.9 million and $5.1 million at the West Texas complex and DBM water systems, respectively, primarily resulting from capital projects being placed into service, and (ii) $5.4 million related to depreciation for capitalized information technology implementation costs. These increases were offset partially by a decrease of $13.3 million at the DJ Basin complex primarily due to acceleration of depreciation expense during 2022.

#### Long-lived asset and other impairment expense

Long-lived asset and other impairment expense for the nine months ended September 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.

### Interest Expense

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Long-term and short-term debt | **$(83,177)** | $(85,088) | (2)% | **$(249,416)** | $(243,559) | 2% |
| Finance lease liabilities | **(223)** | (230) | (3)% | **(616)** | (96) | NM |
| Commitment fees and amortization of debt-related costs | **(2,904)** | (3,414) | (15)% | **(9,199)** | (9,149) | 1% |
| Capitalized interest | **3,550** | 2,550 | 39% | **8,625** | 3,471 | 148% |
| Interest expense | **$(82,754)** | $(86,182) | (4)% | **$(250,606)** | $(249,333) | 1% |

#### Interest expense

Interest expense decreased by $3.4 million for the three months ended September 30, 2023, primarily due to decreases of (i) $3.7 million due to credit-rating related interest rate changes and lower outstanding balances on certain senior notes, and (ii) $1.0 million due to higher capitalized interest. These decreases were offset partially by an increase of $0.7 million primarily due to higher outstanding borrowings under the RCF during the third quarter of 2023.

Interest expense increased by $1.3 million for the nine months ended September 30, 2023, primarily due to increases of (i) $23.0 million of interest incurred on the 6.150% Senior Notes due 2033 that were issued during the second quarter of 2023 and (ii) $1.7 million primarily due to higher outstanding borrowings and average interest rates on the RCF during 2023. These increases were offset partially by decreases of (i) $10.0 million due to credit-rating related interest rate changes and lower outstanding balances on certain senior notes, (ii) $5.2 million due to higher capitalized interest, (iii) $5.1 million due to the redemption of the total principal amount outstanding of the 4.000% Senior Notes due 2022 during the second quarter of 2022, and (iv) $3.9 million due to the redemption of the total principal amount outstanding of the Floating-Rate Senior Notes due 2023 during the first quarter of 2023.

See *Liquidity and Capital Resources—Debt and credit facilities* within this Item 2.

### Other Income (Expense), Net

*thousands except percentages*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | --- |
| Other income (expense), net | **$(1,270)** | $2,872 | (144)% | **$2,817** | $117 | NM |

Other income (expense), net decreased by $4.1 million for the three months ended September 30, 2023, primarily due to interest accrued in the third quarter of 2023 related to a sales tax audit.

Other income (expense), net increased by $2.7 million for the nine months ended September 30, 2023, primarily due to interest income earned resulting from higher interest rates and cash and cash equivalent balances throughout 2023, partially offset by interest accrued in the third quarter of 2023 related to a sales tax audit.

### 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.

### 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 reimbursed by certain customers (recorded as revenue with an offset recorded as Operation and maintenance expense).

***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 should be considered indicative of the amount of cash that is available for distributions, debt repayments, and other general partnership purposes.

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:

*Reconciliation of Gross margin to Adjusted gross margin*

| thousands | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Total revenues and other | **$776,013** | $738,273 | **$2,248,268** | $2,472,284 |
| Less: |  |  |  |  |
| Cost of product | **27,590** | 44,746 | **123,795** | 328,237 |
| Depreciation and amortization | **147,363** | 143,492 | **435,481** | 430,455 |
| Gross margin | **601,060** | 550,035 | **1,688,992** | 1,713,592 |
| Add: |  |  |  |  |
| Distributions from equity investments | **41,562** | 54,075 | **147,612** | 180,768 |
| Depreciation and amortization | **147,363** | 143,492 | **435,481** | 430,455 |
| Less: |  |  |  |  |
| Reimbursed electricity-related charges recorded as revenues | **29,981** | 23,286 | **76,836** | 58,187 |
| Adjusted gross margin attributable to noncontrolling interests (1) | **18,095** | 16,914 | **50,783** | 56,142 |
| Adjusted gross margin | **$741,909** | $707,402 | **$2,144,466** | $2,210,486 |

(1) For all periods presented, 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.

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.*

| thousands except per-unit amounts Gross margin | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross margin for natural-gas assets (1) | **$450,130** | $409,634 | **$1,253,437** | $1,273,689 |
| Gross margin for crude-oil and NGLs assets (1) | **87,911** | 88,024 | **265,216** | 270,716 |
| Gross margin for produced-water assets (1) | **70,353** | 59,130 | **189,032** | 184,085 |
| Per-Mcf Gross margin for natural-gas assets (2) | **1.05** | 1.02 | **1.03** | 1.07 |
| Per-Bbl Gross margin for crude-oil and NGLs assets (2) | **1.40** | 1.51 | **1.50** | 1.42 |
| Per-Bbl Gross margin for produced-water assets (2) | **0.69** | 0.68 | **0.68** | 0.80 |
| **Adjusted gross margin** |  |  |  |  |
| Adjusted gross margin for natural-gas assets | **$518,765** | $489,476 | **$1,488,250** | $1,539,009 |
| Adjusted gross margin for crude-oil and NGLs assets | **139,430** | 147,036 | **432,043** | 457,158 |
| Adjusted gross margin for produced-water assets | **83,714** | 70,890 | **224,173** | 214,319 |
| Per-Mcf Adjusted gross margin for natural-gas assets (3) | **1.26** | 1.26 | **1.27** | 1.34 |
| Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (3) | **2.27** | 2.58 | **2.49** | 2.44 |
| Per-Bbl Adjusted gross margin for produced-water assets (3) | **0.84** | 0.83 | **0.83** | 0.94 |

(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.

*Reconciliation of Net income (loss) to Adjusted EBITDA*

| thousands | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) | **$284,398** | $259,516 | **$752,255** | $906,422 |
| Add: |  |  |  |  |
| Distributions from equity investments | **41,562** | 54,075 | **147,612** | 180,768 |
| Non-cash equity-based compensation expense | **7,171** | 7,665 | **22,035** | 21,245 |
| Interest expense | **82,754** | 86,182 | **250,606** | 249,333 |
| Income tax expense | **905** | 659 | **2,980** | 3,683 |
| Depreciation and amortization | **147,363** | 143,492 | **435,481** | 430,455 |
| Impairments | **245** | 234 | **52,880** | 94 |
| Other expense | **1,269** | 199 | **1,668** | 346 |
| Less: |  |  |  |  |
| Gain (loss) on divestiture and other, net | **(1,480)** | (70) | **(3,668)** | (884) |
| Gain (loss) on early extinguishment of debt | **8,565** | 6,813 | **15,378** | 91 |
| Equity income, net – related parties | **35,494** | 42,324 | **116,839** | 139,388 |
| Other income | **27** | 2,872 | **4,114** | 164 |
| Adjusted EBITDA attributable to noncontrolling interests (1) | **12,134** | 11,737 | **34,886** | 41,395 |
| Adjusted EBITDA | **$510,927** | $488,346 | **$1,497,968** | $1,612,192 |
| **Reconciliation of Net cash provided by operating activities to Adjusted EBITDA** |  |  |  |  |
| Net cash provided by operating activities | **$394,787** | $490,823 | **$1,188,034** | $1,212,207 |
| Interest (income) expense, net | **82,754** | 86,182 | **250,606** | 249,333 |
| Accretion and amortization of long-term obligations, net | **(1,882)** | (2,403) | **(5,977)** | (5,359) |
| Current income tax expense (benefit) | **806** | 728 | **2,026** | 1,926 |
| Other (income) expense, net | **1,270** | (2,872) | **(2,817)** | (117) |
| Distributions from equity investments in excess of cumulative earnings – related parties | **8,536** | 10,813 | **31,715** | 41,058 |
| Changes in assets and liabilities: |  |  |  |  |
| Accounts receivable, net | **60,614** | (4,078) | **60,573** | 212,955 |
| Accounts and imbalance payables and accrued liabilities, net | **(12,535)** | (36,885) | **87,040** | (65,069) |
| Other items, net | **(11,289)** | (42,225) | **(78,346)** | 6,653 |
| Adjusted EBITDA attributable to noncontrolling interests (1) | **(12,134)** | (11,737) | **(34,886)** | (41,395) |
| Adjusted EBITDA | **$510,927** | $488,346 | **$1,497,968** | $1,612,192 |
| **Cash flow information** |  |  |  |  |
| Net cash provided by operating activities | **$394,787** | $490,823 | **$1,188,034** | $1,212,207 |
| Net cash used in investing activities | **(207,916)** | (151,490) | **(538,584)** | (356,252) |
| Net cash provided by (used in) financing activities | **88,670** | (238,025) | **(446,612)** | (898,861) |

(1) For all periods presented, 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.

*Reconciliation of Net cash provided by operating activities to Free cash flow*

| thousands | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | **$394,787** | $490,823 | **$1,188,034** | $1,212,207 |
| Less: |  |  |  |  |
| Capital expenditures | **201,857** | 161,482 | **536,427** | 341,505 |
| Contributions to equity investments – related parties | **1,021** | 22 | **1,153** | 8,899 |
| Add: |  |  |  |  |
| Distributions from equity investments in excess of cumulative earnings – related parties | **8,536** | 10,813 | **31,715** | 41,058 |
| Free cash flow | **$200,445** | $340,132 | **$682,169** | $902,861 |
| **Cash flow information** |  |  |  |  |
| Net cash provided by operating activities | **$394,787** | $490,823 | **$1,188,034** | $1,212,207 |
| Net cash used in investing activities | **(207,916)** | (151,490) | **(538,584)** | (356,252) |
| Net cash provided by (used in) financing activities | **88,670** | (238,025) | **(446,612)** | (898,861) |

***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 $51.0 million for the three months ended September 30, 2023, due to (i) a $37.7 million increase in total revenues and other and (ii) a $17.2 million decrease in cost of product. These amounts were offset partially by a $3.9 million increase in depreciation and amortization.

Gross margin decreased by $24.6 million for the nine months ended September 30, 2023, due to (i) a $224.0 million decrease in total revenues and other and (ii) a $5.0 million increase in depreciation and amortization. These amounts were offset partially by a $204.4 million decrease 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) increased by $24.9 million for the three months ended September 30, 2023, primarily due to a $37.7 million increase in total revenues and other. This increase was offset partially by (i) a $6.8 million decrease in equity income, net – related parties and (ii) a $4.1 million decrease in other income (expense), net.

Net income (loss) decreased by $154.2 million for the nine months ended September 30, 2023, primarily due to (i) a $224.0 million decrease in total revenues and other and (ii) a $22.5 million decrease in equity income, net – related parties. These amounts were offset partially by (i) a $77.8 million decrease in total operating expenses and (ii) a $15.3 million increase in gain (loss) on early extinguishment of debt.

***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.

### KEY PERFORMANCE METRICS

*thousands except percentages and per-unit amounts*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | Inc/ (Dec) | Nine Months Ended September 30, 2023 | September 30, 2022 | Inc/ (Dec) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Adjusted gross margin | **$741,909** | $707,402 | 5% | **$2,144,466** | $2,210,486 | (3)% |
| Per-Mcf Adjusted gross margin for natural-gas assets (1) | **1.26** | 1.26 | —% | **1.27** | 1.34 | (5)% |
| Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (1) | **2.27** | 2.58 | (12)% | **2.49** | 2.44 | 2% |
| Per-Bbl Adjusted gross margin for produced-water assets (1) | **0.84** | 0.83 | 1% | **0.83** | 0.94 | (12)% |
| Adjusted EBITDA | **510,927** | 488,346 | 5% | **1,497,968** | 1,612,192 | (7)% |
| Free cash flow | **200,445** | 340,132 | (41)% | **682,169** | 902,861 | (24)% |

(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 $34.5 million for the three months ended September 30, 2023, primarily due to (i) increased throughput and deficiency fees at the West Texas complex, and (ii) increased throughput at the DBM water systems and DJ Basin complex. These increases were partially offset by (i) decreased processing fees at the Brasada complex and (ii) a decrease in distributions from Mi Vida and Mont Belvieu JV.

Adjusted gross margin decreased by $66.0 million for the nine months ended September 30, 2023, primarily due to (i) a decrease in distributions from Cactus II, which was sold in the fourth quarter of 2022, (ii) decreased deficiency fees and throughput at the Chipeta complex, (iii) decreased throughput at the DJ Basin oil system and Granger complex, (iv) a decrease in distributions from Ranch Westex, which was acquired in the third quarter of 2022 and is included in the West Texas complex subsequent to the acquisition, and (v) decreased throughput partially offset by increased deficiency fees at the DJ Basin complex. These decreases were partially offset by (i) increased throughput at the West Texas complex and (ii) increased throughput, partially offset by decreased deficiency fees at the DBM water systems.

Per-Mcf Adjusted gross margin for natural-gas assets decreased by $0.07 for the nine months ended September 30, 2023, primarily due to lower commodity prices and contract mix, partially offset by increased throughput at the West Texas complex.

Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.31 for the three months ended September 30, 2023, primarily due to (i) a decrease in distributions, coupled with an increase in throughput from Whitethorn LLC, which has a lower-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets, and (ii) decreases in distributions from TEP and Mont Belvieu JV.

Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.05 for the nine months ended September 30, 2023, primarily due to (i) decreases in throughput and distributions from Cactus II, which was sold in the fourth quarter of 2022 and had lower-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets and (ii) increases in distributions from FRP and TEP. These increases were partially offset by (i) decreases in distributions from Whitethorn LLC and Mont Belvieu JV, and (ii) decreases in 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.

Per-Bbl Adjusted gross margin for produced-water assets decreased by $0.11 for the nine months ended September 30, 2023, primarily due to a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2023, and lower deficiency fee revenues.

***Adjusted EBITDA.*** Adjusted EBITDA increased by $22.6 million for the three months ended September 30, 2023, primarily due to (i) a $37.7 million increase in total revenues and other, (ii) a $16.9 million decrease in cost of product (net of lower of cost or market inventory adjustments), and (iii) a $4.0 million decrease in property and other taxes. These amounts were offset partially by (i) a $21.0 million increase in operation and maintenance expenses and (ii) a $12.5 million decrease in distributions from equity investments.

Adjusted EBITDA decreased by $114.2 million for the nine months ended September 30, 2023, primarily due to (i) a $224.0 million decrease in total revenues and other, (ii) a $74.5 million increase in operation and maintenance expenses, (iii) a $33.2 million decrease in distributions from equity investments, and (iv) a $14.1 million increase in general and administrative expenses excluding non-cash equity-based compensation expense. These amounts were offset partially by (i) a $204.5 million decrease in cost of product (net of lower of cost or market inventory adjustments) and (ii) a $20.5 million decrease in property and other taxes.

***Free cash flow.*** Free cash flow decreased by $139.7 million for the three months ended September 30, 2023, primarily due to (i) a $96.0 million decrease in net cash provided by operating activities and (ii) a $40.4 million increase in capital expenditures.

Free cash flow decreased by $220.7 million for the nine months ended September 30, 2023, primarily due to a $194.9 million increase in capital expenditures (ii) a $24.2 million decrease in net cash provided by operating activities, and (iii) a $9.3 million decrease in distributions from equity investments in excess of cumulative earnings. These amounts were offset partially by a $7.7 million decrease in contributions to equity investments.

See *Capital Expenditures* and *Historical Cash Flow* within this Item 2 for further information.

### LIQUIDITY AND CAPITAL RESOURCES

Our primary cash uses include equity and debt service, operating expenses, and capital expenditures. Our sources of liquidity as of September 30, 2023, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, 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 third quarter of 2023 of $0.5750 per unit, a 2.2% increase from the prior quarter, or $223.4 million in the aggregate. The cash distribution is payable on November 13, 2023, to our unitholders of record at the close of business on November 1, 2023.

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 April 2023, the Board approved an Enhanced Distribution of $0.356 per unit, or $140.1 million, related to our 2022 performance, which was paid in conjunction with our regular first-quarter 2023 distribution on May 15, 2023.

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 nine months ended September 30, 2023, we repurchased 5,387,322 common units, which includes 5,100,000 common units repurchased from Occidental, for an aggregate purchase price of $134.6 million. The units were canceled immediately upon receipt. As of September 30, 2023, we had an authorized amount of $627.8 million remaining under the program.

For the year ended December 31, 2023, capital expenditures are expected to range between $700.0 million to $800.0 million (accrual-based, includes equity investments, excludes capitalized interest, and excludes capital expenditures associated with the 25% third-party interest in Chipeta), representing a $125.0 million increase to the midpoint of our previously announced guidance in February 2023. Total-year capital expenditures guidance includes capital expenditures attributable to (i) a portion of Mentone Train III, (ii) a portion of the North Loving plant, a new 250 MMcf/d cryogenic processing plant in the North Loving area of our West Texas complex that was sanctioned in May 2023, and (iii) additional expansion capital needed to support new commercial activity.

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.

***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 September 30, 2023, we had a $499.9 million working capital surplus, which we define as the amount by which current assets exceed current liabilities. As of September 30, 2023, there was $2.0 billion available for borrowing under the RCF. 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. Capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:

| thousands | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Acquisitions | **$—** | $41,018 |
| Capital expenditures (1) | **536,427** | 341,505 |
| Capital incurred (1) | **566,224** | 377,650 |

(1) For the nine months ended September 30, 2023 and 2022, included $8.6 million and $3.5 million, respectively, of capitalized interest.

Acquisitions for the nine months ended September 30, 2022, include the acquisition of the remaining 50% interest in Ranch Westex (see *Acquisitions and Divestitures* within this Item 2).

Capital expenditures increased by $194.9 million for the nine months ended September 30, 2023, primarily due to increases of (i) $91.2 million at the West Texas complex, primarily attributable to facility expansion, including ongoing construction of Mentone Train III and engineering and equipment milestone payments for the North Loving Plant, and pipeline projects, (ii) $71.4 million at the DBM water systems due to construction of additional water-disposal wells and facilities, pipeline build-out, and replacement projects, (iii) $30.5 million at the DBM oil system, primarily related to an increase in pipeline, oil treating, and oil pumping projects, and (iv) $8.1 million at the DJ Basin oil system due to an increase in pipeline projects.

***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:

| thousands Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | **$1,188,034** | $1,212,207 |
| Investing activities | **(538,584)** | (356,252) |
| Financing activities | **(446,612)** | (898,861) |
| Net increase (decrease) in cash and cash equivalents | **$202,838** | $(42,906) |

*Operating activities*. Net cash provided by operating activities decreased for the nine months ended September 30, 2023, primarily due to (i) lower cash operating income, (ii) lower distributions from equity investments, and (iii) higher interest expense. These increases were partially offset by the impact of changes in assets and liabilities. 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 used in investing activities for the nine months ended September 30, 2023, primarily included the following:

- $536.4 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;
- $32.7 million of increases to materials and supplies inventory; and
- $31.7 million of distributions received from equity investments in excess of cumulative earnings.

Net cash used in investing activities for the nine months ended September 30, 2022, primarily included the following:

- $341.5 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;
- $41.0 million of cash paid for the acquisition of the remaining 50% interest in Ranch Westex (see *Acquisitions and Divestitures* within this Item 2);
- $8.9 million of capital contributions primarily paid to Red Bluff Express;
- $7.0 million of increases to materials and supplies inventory; and
- $41.1 million of distributions received from equity investments in excess of cumulative earnings.

*Financing activities*. Net cash used in financing activities for the nine months ended September 30, 2023, primarily included the following:

- $845.0 million of repayments of outstanding borrowings under the RCF;
- $778.3 million of distributions paid to WES unitholders and noncontrolling interest owners;
- $259.8 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases;
- $213.1 million to redeem the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value;
- $134.6 million of unit repurchases;
- $740.6 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;
- $595.1 million of net proceeds from the 6.350% Senior Notes due 2029 issued in September 2023, which were used to fund a portion of the aggregate purchase price for the Meritage acquisition, to pay related costs and expenses, and for general partnership purposes; and
- $470.0 million of borrowings under the RCF, which were used for general partnership purposes.

Net cash used in financing activities for the nine months ended September 30, 2022, primarily included the following:

- $765.0 million of repayments of outstanding borrowings under the RCF;
- $538.7 million of distributions paid to WES unitholders;
- $502.2 million to redeem the total principal amount outstanding of WES Operating’s 4.000% Senior Notes due 2022;
- $447.1 million of unit repurchases;
- $20.2 million of distributions paid to the noncontrolling interest owner of WES Operating;
- $5.0 million of distributions paid to the noncontrolling interest owner of Chipeta;
- $1,390.0 million of borrowings under the RCF, which were used for general partnership purposes and to redeem portions of certain of WES Operating’s senior notes; and
- $1.5 million of increases in outstanding checks.

***Debt and credit facilities.*** As of September 30, 2023, the carrying value of outstanding debt was $7.3 billion, we have no borrowings due within the next year, and have $2.0 billion of available borrowing capacity under WES Operating’s $2.0 billion RCF.

During the nine months ended September 30, 2023, WES Operating (i) completed the public offering of $600.0 million in aggregate principal amount of 6.350% Senior Notes due 2029, (ii) completed the public offering of $750.0 million in aggregate principal amount of 6.150% Senior Notes due 2033, (iii) entered into an amendment to our RCF to, among other things, extend the maturity date to April 2028 and provide for a maximum borrowing capacity up to $2.0 billion, expandable to a maximum of $2.5 billion, through the maturity date, (iv) purchased and retired $276.7 million of certain of its senior notes via open-market repurchases, and (v) redeemed the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value with cash on hand.

In May 2023, Fitch Ratings upgraded WES Operating’s long-term debt from “BB+” to “BBB-.” WES Operating’s senior unsecured debt ratings is now investment grade at Standard and Poor’s, Moody’s Investors Services, and Fitch Ratings. As a result of the upgrade, annualized borrowing costs will decrease by $6.9 million on WES Operating’s senior notes that are subject to effective interest-rate adjustments from a change in credit rating.

For additional information on our senior notes and the RCF, see *Note 10—Debt and Interest Expense* in the *Notes to Consolidated Financial Statements* under Part I, Item 1 of this Form 10-Q.

***Offload commitments.*** We have entered into offload agreements with third parties providing firm-processing capacity through 2025. As of September 30, 2023, we have future minimum payments under offload agreements totaling $4.8 million for the remainder of 2023 and a total of $11.6 million in years thereafter.

***Pipeline commitments.*** We have entered into transportation contracts with volume commitments on multiple pipelines through 2033. As of September 30, 2023, we have estimated future minimum-volume-commitment fees totaling $1.6 million for the remainder of 2023, and a total of $51.6 million in years thereafter.

***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 rights to request adequate assurance.

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.

### 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:

| thousands | Three Months Ended September 30, 2023 | June 30, 2023 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) attributable to WES | **$277,296** | $252,921 | **$733,862** | $880,779 |
| Limited partner interest in WES Operating not held by WES (1) | **5,670** | 5,185 | **15,016** | 18,016 |
| General and administrative expenses (2) | **509** | 1,186 | **1,927** | 1,764 |
| Other income (expense), net | **(60)** | (129) | **(214)** | (18) |
| Net income (loss) attributable to WES Operating | **$283,415** | $259,163 | **$750,591** | $900,541 |

(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:

| thousands | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| WES net cash provided by operating activities | **$1,188,034** | $1,212,207 |
| General and administrative expenses (1) | **1,927** | 1,764 |
| Non-cash equity-based compensation expense | **(434)** | (423) |
| Changes in working capital | **(15,223)** | (9,101) |
| Other income (expense), net | **(214)** | (18) |
| WES Operating net cash provided by operating activities | **$1,174,090** | $1,204,429 |
| WES net cash provided by (used in) financing activities | **$(446,612)** | $(898,861) |
| Distributions to WES unitholders (2) | **754,998** | 538,690 |
| Distributions to WES from WES Operating (3) | **(894,510)** | (988,395) |
| Increase (decrease) in outstanding checks | **(3)** | 103 |
| Unit repurchases | **134,602** | 447,075 |
| Other | **14,371** | 7,942 |
| WES Operating net cash provided by (used in) financing activities | **$(437,154)** | $(893,446) |

(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.

***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, 2022.

## Market risk

As filed, 1,663 characters.

*Commodity-price risk.* There have been no significant changes to our commodity-price risk discussion from the disclosure set forth under Part II, Item 7A in our Form 10-K for the year ended December 31, 2022, except as noted below and in *Outlook* under Part I, Item 2 of this Form 10-Q.

For the nine months ended September 30, 2023, 95% of our wellhead natural-gas volume (excluding equity investments) and 100% of our crude-oil and produced-water throughput (excluding equity investments) were serviced under fee-based contracts. A 10% increase or decrease in commodity prices would not have a material impact on our operating income (loss), financial condition, or cash flows for the next 12 months, excluding the effect of imbalances.

*Interest-rate risk.* The Federal Open Market Committee increased its target range seven times for the federal funds rate in 2022 and increased its target range four times during the nine months ended September 30, 2023. Any future increases in the federal funds rate likely will result in an increase in financing costs. As of September 30, 2023, WES Operating had no outstanding borrowings under the RCF that bear interest at a rate based on the Secured Overnight Financing Rate (“SOFR”) or an alternative base rate at WES Operating’s option. While a 10% change in the applicable benchmark interest rate would not materially impact interest expense on our outstanding borrowings at September 30, 2023, it would impact the fair value of the senior notes.

Additional variable-rate debt may be issued in the future, either under the RCF or other financing sources, including commercial paper borrowings or debt issuances.

## Controls and procedures

As filed, 2,195 characters.

***Evaluation of Disclosure Controls and Procedures.*** The Chief Executive Officer and Chief Financial Officer of WES’s general partner and WES Operating GP (for purposes of this Item 4, “Management”) performed an evaluation of WES’s and WES Operating’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. WES’s and WES Operating’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that WES’s and WES Operating’s disclosure controls and procedures were effective as of September 30, 2023.

***Changes in Internal Control Over Financial Reporting.*** On April 1, 2023, WES and WES Operating implemented a new Enterprise Resource Planning (“ERP”) system. As a result of this implementation, certain internal controls over financial reporting have been automated, modified, or implemented to address the new environment associated with the implementation of this type of system. While WES and WES Operating believe that this system will strengthen the internal control system, there are inherent risks in implementing any new system and WES and WES Operating will continue to evaluate these control changes as part of their assessments of internal control over financial reporting. Other than the ERP implementation, there have been no changes in WES or WES Operating’s internal control over financial reporting that occurred during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, WES or WES Operating’s internal control over financial reporting during the most recent fiscal quarter.

## Risk factors

As filed, 1,172 characters.

Security holders and potential investors in our securities should carefully consider the risk factor included below and those set forth under Part I, Item 1A in our Form 10-K for the year ended December 31, 2022, together with all of the other information included in this document, and in our other public filings, press releases, and public discussions with management.

***We may fail to successfully combine our business with the assets and business of Meritage, which could have an adverse impact on our future results.***

The Meritage acquisition closed on October 13, 2023. The integration of these acquired assets involve potential risks, including the failure to realize expected profitability, growth, or accretion; environmental or regulatory compliance matters or liabilities; diversion of management’s attention from our existing business; and the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate.

If any of the risks described above or other anticipated or unanticipated liabilities were to materialize, it could have an adverse effect on our business, financial condition, and results of operations.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0001423902-23-000065. Last ingested by Listed: Oct 29, 2026, 16:55 ET. No prices; not investment advice.