Executive Summary / Key Takeaways

• Western Midstream Partners (WES) has solidified its position as a leading three-stream midstream provider through strategic organic growth and the transformative acquisition of Aris Water Solutions , enhancing its integrated service offerings in the Delaware Basin.
• The company delivered robust financial performance in Q3 2025, achieving record Adjusted EBITDA of $633.8 million and strong Free Cash Flow of $397.4 million, driven by operational efficiencies and cost reduction initiatives.
• WES's differentiated approach to produced water management, anchored by the Pathfinder Pipeline and the Aris acquisition, provides a critical competitive advantage and long-term growth catalyst, addressing a significant industry challenge.
• With a strong balance sheet, net leverage at or near 3x, and a commitment to mid-to-low single-digit distribution growth, WES is well-positioned to fund substantial capital projects like North Loving II and Pathfinder, driving future profitability.
• While commodity price volatility and integration risks exist, WES's long-term, fee-based contracts and strategic regional focus underpin its resilient business model and potential for sustained unitholder value creation.

Setting the Scene for Midstream Leadership

Western Midstream Partners, LP (NYSE:WES) stands as a pivotal player in the North American energy infrastructure, providing essential services across the natural gas, crude oil, natural gas liquids (NGLs), and produced water streams. Operating primarily in prolific basins across Texas, New Mexico, Colorado, Utah, and Wyoming, WES connects upstream production to market delivery through an intricate network of gathering systems, processing plants, and transportation pipelines. The company's overarching strategy centers on disciplined capital allocation, a relentless pursuit of operational efficiency, and a commitment to both organic growth and synergistic acquisitions. This approach is underpinned by a robust financial framework, characterized by long-term, fee-based contracts that shield a substantial majority of its cash flows from direct commodity price volatility, ensuring predictable revenue streams.

The midstream sector is currently shaped by several broad industry trends. Increasing energy demand, particularly for natural gas, continues to drive infrastructure needs. Concurrently, the escalating volumes of produced water associated with crude oil and natural gas development, especially in the Delaware Basin, present both significant challenges and opportunities for specialized midstream solutions. Regulatory scrutiny around produced water disposal and environmental management is also intensifying, favoring larger, more capable operators. WES's strategic positioning and integrated service model are designed to capitalize on these dynamics, reinforcing its role as a critical artery in the evolving energy landscape.

A History of Strategic Evolution and Growth

WES has undergone a significant transformation since its formation in 2012 and its emergence as a standalone partnership. A core tenet of its strategy has been strengthening the balance sheet, successfully reducing net leverage from approximately 4.6 times in 2019 to below 3 times by the end of 2024. This deleveraging journey has provided WES with substantial financial flexibility.

The company's asset portfolio has been strategically optimized through targeted acquisitions and divestitures. While WES divested non-core equity investments and its Marcellus Interest systems in early 2024, it also successfully integrated Meritage Midstream, expanding its footprint. More recently, WES has focused on significant organic growth projects. The Mentone III plant commenced operations in March 2024, followed by the commissioning of the North Loving plant in the Delaware Basin in mid-February 2025. This greenfield project increased West Texas natural gas processing capacity by 250 million cubic feet per day (MMcfd). Due to rapid utilization, WES sanctioned North Loving Train II in Q2 2025, an additional 300 MMcfd natural gas processing train, projected to bring the total West Texas complex capacity to approximately 2.5 billion cubic feet per day (Bcfd) by early Q2 2027.

Technological Edge: Integrated Flow Assurance and Water Solutions

WES's primary technological differentiation lies not in a single patented device, but in its comprehensive, integrated approach to midstream solutions, particularly in the critical and increasingly complex domain of produced water management. This strategy leverages extensive infrastructure, operational expertise, and strategic partnerships to deliver unparalleled flow assurance for its customers.

The Pathfinder Pipeline is a prime example of this differentiation. Sanctioned in late 2024, this 30-inch, 40+ mile pipeline is designed to transport over 800,000 barrels per day (Bbls/day) of produced water to existing and newly constructed facilities in Eastern Loving County. The project is anchored by a new long-term agreement with Occidental Petroleum , providing up to 280,000 Bbls/day of firm gathering and transportation capacity and up to 220,000 Bbls/day of firm disposal capacity, supported by minimum volume commitments. Pathfinder includes the development of nine additional saltwater disposal (SWD) facilities in Eastern Loving County, strategically located away from high-intensity disposal areas to enable responsible, ratable, and long-term disposal. This infrastructure is designed to mitigate seismicity and subsurface pressure challenges, which are growing concerns in the Delaware Basin.

A transformative move in October 2025 was the acquisition of Aris Water Solutions, Inc. for $1.5 billion, plus the assumption of approximately $500 million in debt. This acquisition significantly expanded WES's produced water capabilities, adding approximately 790 miles of pipeline, 1,800 MBblsd of produced-water handling capacity, and 1,400 MBblsd of water recycling capacity, along with 625,000 dedicated acres in Lea and Eddy Counties, New Mexico, and West Texas. Post-acquisition, WES's pro forma produced water disposal capacity now exceeds 3.8 million barrels per day.

The tangible benefits of this integrated approach are substantial. It provides enhanced flow assurance for producers, offering long-term and environmentally responsible solutions for managing the increasing water-to-oil ratios (ranging from 3x to 12x) in the Delaware Basin. WES is also focused on leveraging Aris's capabilities in water recycling, beneficial reuse, and advanced treatment technologies, including the long-term optionality of the McNeill Ranch for pore space and surface use. For investors, this technological and strategic differentiation creates a robust competitive moat, strengthens customer relationships by offering a "3-stream" solution, and positions WES for sustained profitability and market leadership in a critical and growing segment of the energy industry.

Competitive Positioning in a Dynamic Market

WES operates in a highly competitive midstream energy sector, where it holds a significant, though not dominant, position. The company's competitive strengths stem from its strategically located assets, long-term contracts, and operational efficiency.

WES's regional expertise in the Delaware, DJ, Powder River, and Uinta Basins, coupled with its expanded presence in New Mexico, provides a distinct advantage. Its integrated water solutions, particularly post-Aris acquisition, differentiate it from many peers. WES maintains strong relationships with key customers, including Occidental Petroleum (which accounts for over 10% of consolidated revenues), Chevron (CVX), ConocoPhillips (COP), and Mewbourne, further solidified by long-term, fee-based contracts with minimum volume commitments. The company's focus on cost reduction initiatives, which led to a 5% sequential decrease in operation and maintenance expenses in Q3 2025 while achieving 99.6% system operability, underscores its operational efficiency.

When compared to major competitors:

• Kinder Morgan : WES offers competitive natural gas services but KMI's broader geographic scale provides a more comprehensive reach. WES's regional focus and specialized water management, however, offer an edge in niche markets and localized operational adaptability.
• Enterprise Products Partners (EPD): WES's NGL and crude oil transportation services are competitive, but EPD's integrated approach, including advanced fractionation and export facilities, provides a qualitative advantage in efficiency and market access. WES, however, leads in specialized water management services.
• Plains All American Pipeline (PAA): WES's crude oil gathering and NGL stabilization services are efficient, but PAA leads in pure crude logistics scale. WES's broader midstream integration, encompassing gas, liquids, and water, offers greater versatility.
• Oneok (OKE): Both WES and OKE are strong in natural gas processing and transportation. WES differentiates itself by integrating comprehensive water management, offering a unique value proposition for holistic services.

High capital requirements and stringent regulatory approvals act as significant barriers to entry in the midstream sector, favoring established players like WES. The evolving regulatory environment for produced water, with increasing pressure and complexity, further benefits WES by pushing out smaller, less capable players, thereby enhancing its competitive standing.

Robust Financial Performance and Liquidity

WES has demonstrated robust financial performance, reflecting its strategic execution and operational effectiveness. For the third quarter of 2025, WES reported net income attributable to limited partners of $331.7 million and a record Adjusted EBITDA of $633.8 million, marking its second consecutive quarter of record Adjusted EBITDA.

Cash flows provided by operating activities totaled $570.2 million, generating Free Cash Flow of $397.4 million for the quarter.

Year-to-date through Q3 2025, WES's Adjusted Gross Margin increased by $106.40 million, driven by increased throughput in West Texas and the Powder River Basin, as well as higher throughput and deficiency fees in the DBM oil system and increased throughput in DBM water systems. Adjusted EBITDA for the nine months ended September 30, 2025, increased by $91.90 million, primarily due to a $135.20 million increase in total revenues and other. Free Cash Flow for the same period saw a substantial increase of $170.30 million, attributed to an $89.30 million decrease in capital expenditures and an $82.60 million increase in net cash provided by operating activities.

Operational efficiency has been a key driver, with operation and maintenance expense decreasing by $12 million, or 5% sequentially, in Q3 2025, a direct result of company-wide cost reduction initiatives. This was achieved while maintaining a record 99.6% system operability.

WES maintains a strong liquidity position. As of September 30, 2025, the company reported a $276.60 million working capital surplus and had $2 billion in effective borrowing capacity under its revolving credit facility (RCF), with no outstanding commercial paper borrowings. WES Operating successfully repaid $1 billion in senior notes maturing in 2025 using cash on hand, including proceeds from a 2024 public offering, and remains in compliance with all debt covenants. The RCF maturity was also extended from April 2029 to April 2030 for extending lenders in April 2025.

From a profitability perspective, WES's trailing twelve-month (TTM) ratios highlight its financial health: a Gross Profit Margin of 77.24%, Operating Profit Margin of 46.03%, Net Profit Margin of 35.18%, and an EBITDA Margin of 59.51%. The company also offers an attractive TTM Dividend Yield of 9.25%.

Outlook and Strategic Initiatives for Sustained Growth

WES's outlook is characterized by continued strategic investment and anticipated growth across its core product lines. For the full year 2025, WES expects Adjusted EBITDA to be towards the high end of its $2.35 billion to $2.55 billion guidance range, including an estimated $45 million to $50 million contribution from the Aris acquisition in Q4. Free Cash Flow is projected to be above the high end of its $1.275 billion to $1.475 billion guidance range, with incremental contributions from Aris. Capital expenditures for 2025 are expected towards the high end of $625 million to $775 million, reflecting initial spending on North Loving II and Aris-related capital, partially offset by deferrals in the Powder River Basin.

Throughput guidance for 2025 anticipates mid-single-digit percentage growth for natural gas and produced water, and low single-digit growth for crude oil and NGLs. Notably, produced water throughput is expected to increase by approximately 40% year-over-year (including Aris's contribution), implying Q4 2025 throughput of 2.6 million to 2.7 million barrels per day. The Delaware Basin is projected to see low double-digit natural gas growth and low to mid-single-digit crude oil and NGLs growth. Meaningful natural gas throughput growth is also expected from the Uinta Basin in Q4 2025, driven by the Kinder Morgan (KMI) Altamont pipeline connection to the Chipeta plant.

Looking ahead to 2026, capital expenditures are forecasted to be at least $1.1 billion, with the majority allocated to the Pathfinder Pipeline and North Loving II projects. These projects are expected to drive substantial EBITDA growth beginning in 2027. Despite this elevated spending, WES anticipates maintaining net leverage at or near 3x. The Delaware Basin is expected to remain the primary engine of throughput growth in 2026, especially with the integration of Aris's water volumes. However, if commodity price weakness persists, modest declines in throughput are anticipated for the Powder River Basin and DJ Basin in 2026.

WES's distribution strategy targets mid-to-low single-digit annual percentage growth, with the intention for distribution growth to trail earnings growth to enhance distribution coverage and cash flow certainty. The company has retired the enhanced distribution concept, focusing solely on sustainable base distribution growth.

Key Risks and Challenges

While WES presents a compelling investment thesis, several risks and challenges warrant consideration. The integration of Aris Water Solutions , though strategic, carries inherent risks such as the failure to realize expected profitability or synergies, potential environmental or regulatory compliance issues, and the diversion of management's attention.

Commodity price volatility remains a significant factor. Fluctuating crude oil, natural gas, and NGLs prices can reduce customer activity levels and impact capital allocation decisions, particularly in more commodity-sensitive basins like the Powder River and DJ Basins, where rig drops or relocations could occur. WES also faces credit risk from potential non-payment or non-performance by counterparties, including Occidental Petroleum (OXY), which represents a significant portion of its revenues. Contractual disputes, such as ongoing discussions with Occidental regarding cost-of-service rates in the DJ Basin, could also negatively impact financial results if resolved adversely.

Broader macroeconomic factors like inflation can increase operating and capital costs, while volatile interest rates can raise financing costs, potentially impacting unit price and equity issuance ability. Operational challenges faced by producers, including severe weather, takeaway constraints, produced water limitations, and seismicity concerns, can affect volumes available for WES to service.

Conclusion

Western Midstream Partners is strategically positioned for a new phase of growth, building on a foundation of disciplined financial management and operational excellence. The company's recent record-setting financial performance, coupled with its transformative acquisition of Aris Water Solutions (ARIS) and significant organic growth projects like the Pathfinder Pipeline and North Loving II, underscores a clear commitment to expanding its integrated midstream service offerings. WES's differentiated approach to produced water management, leveraging extensive infrastructure and operational expertise, addresses a critical and growing need in the Delaware Basin, establishing a strong competitive moat.

With a robust balance sheet, a clear capital allocation framework, and a focus on sustainable distribution growth, WES is well-equipped to fund its ambitious growth plans while delivering value to unitholders. While the energy sector inherently carries risks from commodity price fluctuations and regulatory changes, WES's long-term, fee-based contracts and strategic regional focus provide a resilient business model. The company's ability to execute on its technological and operational advantages in a dynamic market positions it as a compelling investment for those seeking exposure to a growing and evolving midstream energy landscape.