Western Midstream Partners LP (WES) announced Tuesday it has amended its natural gas gathering and processing contracts in the Delaware Basin with Occidental Petroleum Corp and expanded its partnership with ConocoPhillips in the same basin.
The new agreements with ConocoPhillips and Occidental advance WES’ transition to fixed-fee arrangements in the maturing basin, The Woodlands, Texas-based company said in a statement on its website. The previous agreement with Occidental already provided for a transition to a fixed-fee structure; the new agreement speeds up that transition, according to WES.
Houston, Texas-based oil, gas and chemicals producer Occidental agreed to reduce its ownership in WES from about 42 percent to around 40 percent under the renegotiated gathering and processing contracts, “further positioning WES as a standalone midstream enterprise”, WES said.
“Following this amendment, approximately nine percent of WES’ total revenue will remain subject to cost-of-service rates, with approximately one percent of total revenue subject to cost-of-service rates expiring in the late 2020s”, WES said. “The remaining cost-of-service rate provisions extend into the mid-to-late 2030s and include provisions to convert to fixed-fee structures at that time.
“All significant fixed-fee contracts with Occidental, including the contracts being amended, are effective through the mid-to-late 2030s”.
The new gas gathering contract provides “volumetric protection via substantial minimum volume commitments (MVCs) through the original cost-of-service term, and from that point forward, the existing acreage dedication and fixed-fee structure continues through the duration of the contract”, WES added.
The new gas processing contract “continues to provide volumetric protection via MVCs through 2035”, WES said.
As part of the renegotiated contracts, Occidental will surrender to WES 15.3 million common units currently owned by Occidental. The volume represents around $610 million of limited partnership interests, according to WES.
“This transfer was structured on terms intended to represent a value-neutral exchange for the economic concessions reflected in the agreements and corresponding decrease in WES’s operating cash flow over time”, WES said.
“Over the remaining term of the amended Occidental Delaware Basin natural gas gathering agreement, WES expects that the cumulative reduction in operating cash flows from these transactions will largely be offset by the cumulative distribution savings in financing cash flows as the result of the common unit redemption”, it added.
“The value of the common units transferred will be added to the existing contract liability associated with the Occidental Delaware Basin natural gas gathering agreement of approximately $560 million”.
“Based upon our most recent forecasts and including recognition of revenue associated with the contract liability, the conversion to a fixed-fee structure is not expected to reduce adjusted EBITDA through 2027; after that time and until 2032, the conversion will have a minimal impact to adjusted EBITDA”, WES said.
“Taking into account WES’s acquisition of Aris Water Solutions, and anticipated 2026 growth-oriented capital program of approximately $1.1 billion, WES still expects to maintain net leverage at or near 3.0x adjusted EBITDA in 2026”, it said.
Separately WES penned a gas gathering and processing agreement for a portion of ConocoPhillips production in the Delaware basin. This agreement reduces “total related-party revenue by more than 10 percent”, the statement said.
“The contract with ConocoPhillips is also fixed-fee, includes an acreage dedication and has a tenor through the early 2030s”.
WES president and chief executive Oscar K. Brown explained, “The cost-of-service model was instrumental in safeguarding cash flows during our substantial investment in building WES’s Delaware Basin gathering system. As the basin has matured, transitioning to a simplified, fixed-fee structure is both logical and timely”.
“This evolution strengthens alignment with our largest producer, further diversifies our customer base, enhances transparency and reinforces our ability to deliver enduring value for our stakeholders”, Brown added.
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