Western Midstream Partners Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Western Midstream reported its highest quarterly adjusted EBITDA in its history for Q2, driven by sequential improvement in adjusted gross margin and record throughput levels.
  • Positive Sentiment: The partnership agreed to acquire ARRIS Water Solutions for $2 billion, creating a combined produced water system with over 3.8 million barrels per day disposal capacity and estimated $40 million in annual synergies.
  • Positive Sentiment: WES sanctioned a second 300 MMcf/d processing train at its North Loving plant, boosting West Texas capacity to 2.5 Bcf/d by early 2027 to capture growing gas and water volumes.
  • Neutral Sentiment: Q2 natural gas, crude oil, NGL, and produced water throughput rose 3–6% sequentially across core basins, and WES expects mid- to low-single-digit volume growth for 2025 excluding non-core asset sales.
  • Negative Sentiment: Per-unit adjusted gross margins declined modestly quarter-over-quarter due to lower NGL pricing and contract mix, with Q3 margins forecasted to remain flat.
AI Generated. May Contain Errors.
Earnings Conference Call
Western Midstream Partners Q2 2025
00:00 / 00:00

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Operator

morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

Daniel Jenkins
Daniel Jenkins
Director - IR at Western Midstream Partners

Thank you. I'm glad you could join us today for Western Midstream's second quarter twenty twenty five conference call. I'd like to remind you that today's call, the accompanying slide deck in yesterday's earnings release and the ARRIS acquisition press release and slide deck contain important disclosures regarding forward looking statements and non GAAP reconciliations. Please reference Western Midstream's most recent Form 10 ks and 10 Q and other public filings for a description of risk factors that could cause actual results to differ materially from any forward looking statements we discuss today. Relevant reference materials are posted on our website.

Daniel Jenkins
Daniel Jenkins
Director - IR at Western Midstream Partners

You will also note that due to the pending Arris Water Solutions transaction, today's discussion is subject to certain additional securities laws and so we refer you to the slides in the ARRIS acquisition slide deck titled Forward Looking Statements and Ownership Structure and Additional Disclaimers that are posted in the Events and Presentations section of WES's corporate website. With me today are Oscar Brown, our Chief Executive Officer Danny Holderman, our Chief Operating Officer Kristin Schultz, our Chief Financial Officer and John Vandenbrand, our Senior Vice President of Commercial. I'll now turn the call over to Oscar.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thank you, Daniel, and good morning, everyone. The second quarter was both eventful and highly successful for WES. Yesterday afternoon, we reported strong second quarter operational and financial results highlighted by sequential improvement in adjusted gross margin and the highest quarterly adjusted EBITDA in our partnership's history. In addition, continued strong activity levels and high system operability contributed to increased throughput across all core operating assets and product lines. Notably, we achieved record breaking natural gas, crude oil and NGLs, and produced water throughput in the Delaware Basin.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

While our quarterly results were noteworthy, it is our steadfast commitment to and effective execution of our prudent growth strategy that truly distinguishes this quarter's performance. This is exemplified by our recent announcement of an agreement to acquire Arris Water Solutions and the sanctioning of a second train at our North Loving natural gas processing plant. These actions will enable us to further strengthen our footprint in the Delaware Basin, expand our service offerings, and deliver enhanced flow assurance to all our producing customers. Turning first to the Eris announcement, this accretive bolt on acquisition enables us to optimize the value of our existing asset base and leverage our operational expertise to generate incremental value for our unitholders, which are both core principles of our M and A strategy. By integrating Eris' water disposal, water solutions, and beneficial reuse capabilities with WES's existing produced water business, including our under construction Pathfinder pipeline, this acquisition establishes WES as a best in class interbasin produced water system provider.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

With a differentiated Texas and New Mexico water system, WES will continue to deliver exceptional flow assurance and sustainable service offerings to customers for years to come. The ability to transport water throughout the basin has become increasingly important considering the volume of produced water generated in the Delaware Basin and the recent Texas Railroad Commission regulations pertaining to the permitting of new saltwater disposal wells. After the close of this transaction, WES's pro form a produced water disposal capacity will be more than 3,800,000 barrels per day. Additionally, Eris's recent purchase of the McNeil Ranch, which straddles New Mexico and Texas between the Delaware Basin and the Central Basin Platform, provides significant long term optionality with incremental access to pore space and other surface use opportunities. Next, this transaction further diversifies WES' customer base and contributes to WES' already strong midstream contract portfolio.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Through ARRIS' long term contracts, material acreage dedications that consist of more than 625,000 acres and minimum volume commitments with investment grade counterparties, adding Eris to our portfolio will provide additional support for our distribution. The transaction also significantly expands our footprint in New Mexico, unlocking new opportunities to potentially grow our natural gas and crude oil gathering and processing businesses. Eris' customers include large integrated producers such as Chevron, ConocoPhillips, and Occidental, and large private producers such as Mewburn. At $25 per share, the acquisition values Eris at $2,000,000,000 including the assumption of ARRIS' net debt and other liabilities before transaction costs. This implies approximately 7.5 times twenty twenty six consensus EBITDA inclusive of $40,000,000 of estimated cost synergies.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Based on this, the acquisition is expected to be accretive to twenty twenty six free cash flow per unit. By financing the transaction with up to 28% cash and 72% WES units, we expect our industry leading net leverage position to remain at approximately three times on a pro form a basis. Over the past several years, we have prioritized strengthening our balance sheet through debt reduction, enhancing operational efficiencies, reducing costs and growing adjusted EBITDA. These actions have positioned our partnership to successfully execute this strategic bolt on acquisition from a position of strength. Pivoting to our recently announced organic growth opportunities, we have also sanctioned an additional train at our existing North Loving plant in the Delaware Basin.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

This 300,000,000 cubic feet per day natural gas processing train will increase the North Loving plant capacity to 550,000,000 cubic feet per day and take our total West Texas complex processing capacity to approximately two and a half billion cubic feet per day by early in the 2027. After evaluating multi year throughput forecasts and conducting numerous discussions with our producing customers in West Texas, we strongly believe that the volume of natural gas and produced water will be substantial for years to come. Our North Loving Train one reached full capacity within just one month of its late February twenty twenty five startup, and we are still relying on offloads at times to manage our customers' throughput profile. The offload market today is tighter than in 2022 when we put these original offloads into place. Therefore, we see a need for additional own processing capacity at our West Texas Complex.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We think it is in our partnership's best interest to be well prepared to receive more natural gas and produce water volumes as the gas to oil and the water to oil ratios experienced by our customers continue to increase over time. In addition to these actions, the teams at WES have maintained a sharp focus on enhancing productivity and efficiency to strengthen our cost structure and sharpen our competitive edge. During the first quarter, we implemented new initiatives to optimize operational processes and improve resource allocation, both of which drive meaningful efficiencies and operating performance, improve our ability to compete for new business, and advance high value organic growth initiatives. Kristen will provide additional details on these accomplishments in a moment. These actions, coupled with our Pathfinder pipeline and the recently commissioned North Loving Train one, advanced our strategy of prioritizing capital efficient growth that generates strong returns for WES unitholders and aligns with our continued focus on sustaining and growing the distribution over time.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Collectively, these efforts will help accelerate growth over the coming years, and I look forward to our team's continued strong execution as we strive to deliver excellent service and increased flow assurance for our customers. With that, I will turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance during the second quarter. Danny?

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

Thank you, Oscar, and good morning, everyone. Our second quarter natural gas throughput increased by 3% on a sequential quarter basis, primarily due to increased throughput across all of our core operating basins. The Delaware Basin outperformed in the second quarter, primarily due to numerous wells coming online early in the second quarter. This increase was partially offset by lower throughput from our other assets, specifically in South Texas due to plant turnaround activities during the quarter. Our crude oil and NGLs throughput increased by 6% on a sequential quarter basis due to increased throughput across all of our core operating basins and new wells in the Delaware Basin that came on early in the quarter.

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

We also experienced increased throughput from our equity investments. Additionally, produced water throughput increased by 4% on a sequential quarter basis due to new wells in the Delaware Basin coming online early in the quarter. Our second quarter per Mcf adjusted gross margin for natural gas decreased by $02 on a sequential quarter basis, which was in line with our prior expectations coming into the quarter. This decrease was primarily driven by lower excess natural gas liquids volumes in conjunction with reduced NGL pricing and changes in contract mix. Going forward, we expect our third quarter per Mcf adjusted gross margin to be in line with the second quarter.

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

Our second quarter per barrel adjusted gross margin for crude oil and NGLs decreased by $0.15 compared to the prior quarter, which was in line with our prior expectations coming into the quarter. This decrease was primarily due to more normalized timing of distribution payments and increased throughput from our equity investments, which have a lower than average per barrel margin as compared to our other crude oil and NGL assets. On an operated basis, our per barrel adjusted gross margin remained relatively flat. We expect our third quarter per barrel adjusted gross margin to be in line with the second quarter. Our second quarter per barrel adjusted gross margin for produced water was unchanged and in line with our prior expectations coming into the quarter.

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

Going forward, we expect our third quarter per barrel adjusted gross margin to be in line with the second quarter. Turning our attention to the remainder of the year, we continue to expect our portfolio wide average increase by mid single digits percentage growth for both natural gas and produced water and low single digits percentage growth for crude oil and NGLs. For year over year comparative purposes, these expectations exclude the volumes associated with the non core asset sales that closed in early twenty twenty four. In the Delaware Basin, we continue to expect modest year over year increases in average throughput across all three product lines, reaffirming the basin's role as our primary growth engine in 2025. During the second quarter, Delaware Basin throughput benefited from new wells coming online early in the quarter.

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

Going forward and based on current producer forecast, the cadence of wells that come to market is expected to remain fairly consistent throughout the second half of the year, although we currently forecast this activity to be more heavily weighted towards the fourth quarter. As a result, latest forecast shows that our third quarter Delaware Basin volumes for all three products will remain flat compared to the second quarter levels. In the DJ Basin, we continue to expect average year over year throughput to remain fairly flat for both natural gas and for crude oil and NGLs. During the first half of the year in the Powder River Basin, we benefited from offloads from certain peers that experienced temporary downtime due to asset maintenance or repairs. Even though those trains returned to service by the end of the second quarter and the volumes from those offloads decreased, we still anticipate modest year over year increases in average throughput for both natural gas and crude oil and NGLs for 2025 due to offsetting customer driven organic growth projects.

Danny Holderman
Danny Holderman
SVP & COO at Western Midstream Partners

Finally, we still expect meaningful natural gas throughput growth from our other assets, specifically in the Uinta Basin, to commence in the second half of the year driven by increased volumes from Williams Mountain West pipeline expansion and the tie in of Kinder Morgan's Altamont pipeline to our Chapita plant in September. With that, I'll turn the call over to Kristen to discuss our financial performance during second quarter.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

Thank you Danny and good morning everyone. During the second quarter we generated net income attributable to limited partners of $334,000,000 and adjusted EBITDA of $618,000,000 Relative to the first quarter, our adjusted gross margin increased by $18,000,000 This was primarily driven by increased throughput and improved gross margin contribution from the Delaware Basin, which was partially offset by less gross margin contribution from the excess natural gas liquids volumes in combination with lower NGL pricing and lower distributions from our equity investments. Our operations and maintenance expense decreased slightly quarter over quarter. Going forward, we anticipate higher operation and maintenance expense during the third quarter resulting from increased utility expense during the hotter summer months associated with higher estimated electricity pricing. As a reminder, we are reimbursed approximately 75% of our utility costs portfolio wide from our producing customers.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

Turning to cash flow. Our second quarter cash flow from operating activities totaled $564,000,000 generating free cash flow of $388,000,000 Free cash flow after our first quarter twenty twenty five distribution payment in May was $33,000,000 Focusing on capital markets activities, we retired $337,000,000 of senior notes upon their maturity in early June with cash on hand, and we were able to maintain our top tier net leverage ratio of 2.9 times at quarter end. In July, we declared a quarterly distribution of $0.91 per unit, which is in line with the prior quarter's distribution and will be paid on August 14 to unitholders of record on August 1. At this time, we are not making any changes to our 2025 financial guidance ranges considering the estimated ARRIS acquisition close date, which we expect to be during the fourth quarter after the regulatory review process and the ARRIS shareholder meeting is complete. Additionally, as Oscar previously mentioned, during the first quarter we implemented new initiatives to optimize our operational processes and improve resource allocation, which has yielded meaningful efficiencies and cost reductions across the partnership.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

Through targeted optimization of field level operations, procurement practices, and maintenance and turnaround procedures, we have successfully reduced downtime, increased efficiencies, and identified permanent annual run rate cost savings of approximately $50,000,000 We are already realizing the benefits of these improvements, which are expected to help us better manage and offset rising variable costs and higher operation and maintenance expense as our operations continue to grow. These are ongoing initiatives that we expect to continue yielding results and additional improvements in both 2025 and 2026. With regard to capital spending, we still expect to remain within the 2025 guidance range. But with the addition of North Loving II, coupled with the expected ARRIS acquisition close date during the fourth quarter, we now expect WES to be towards the high end of our previous guidance range of $625,000,007 $75,000,000 Looking ahead to 2026 and recognizing that the majority of expenditures related to Pathfinder and North Loving II will be incurred during that year, we now expect 2026 capital expenditures to be at least $1,100,000,000 Given that both Pathfinder and North 70 two are short cycle capital projects with expected returns of at least mid teens on an unlevered basis, we expect these investments to drive substantial EBITDA growth beginning in 2027.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

Over the coming months, we will continue to receive updated forecasts from our producers, which will allow us to continue developing our 2026 forecast. Even with elevated levels of capital spending next year and the capital needed to close the ARRIS acquisition, we would still expect net leverage to remain at approximately three times. With that said, based on our recent conversations with our customers and updated throughput forecast, we would expect to grow average year over year throughput across all three product lines again in 2026, even before you incorporate the positive contribution from ARRIS. With the growing asset base, the inclusion of ARRIS, and net leverage at approximately three times, we are confident we have plenty of financial flexibility to fund a more robust capital expenditure program that will generate higher throughput in 2027 and beyond. We remain committed to generating strong returns for WES unitholders to sustain and grow the base distribution over time.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

However, in light of our strong current yield, we intend for distribution growth to trail earnings growth in order to increase our distribution coverage and provide greater cash flow certainty. With that, I will now turn the call over to Oscar for closing remarks.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thanks, Kristin. Before we open it up for Q and A, I would like to emphasize how our premier asset portfolio, steadfast commitment to financial discipline and resilient business model distinguish us as an industry leader and positions us to capitalize on compelling growth opportunities, all while delivering industry leading return of capital to our investors and sustained long term value to our stakeholders. First, the ARRIS acquisition significantly strengthens WES' position as a midstream water services leader and allows WES to provide elevated levels of flow assurance to our customers that further de risks their core exploration and production businesses. The increased scale and expanded service offerings that the acquisition provides will better position WES to compete for incremental natural gas and crude oil and NGLs business over the long term, especially in New Mexico. Second, the Arris acquisition and the sanctioning of our second train at the North Loving plant were driven by continued strong producer activity levels in the Delaware Basin that greatly support our growth outlook and strategy in 2026 and beyond.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Despite experiencing volatile market conditions early in the second quarter, we have not experienced any substantial changes in our customers' expected production outlooks, and we remain on track to execute our overall growth strategy. Finally, WES' long term contract portfolio, strong balance sheet, and investment grade credit ratings provide the financial flexibility necessary to support our multiyear expansion projects. Our contract structure is supported by minimum volume commitments and cost of service protections further enhance the stability and predictability of our future profitability and potential free cash flow generation. By maintaining low net leverage and generating strong free cash flow, we are well positioned to maintain our disciplined capital allocation framework, increase distribution coverage and return more capital to unitholders over time. Our strong second quarter results have kept us on track to achieving our twenty twenty five operational and financial goals and the Pathfinder pipeline and North Leving II organic growth projects as well as the ARRIS acquisition, prudently accelerate our growth plans for 2026, 2027 and beyond.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We will remain focused on providing excellent customer service for our producing customers, and we look forward to leveraging our leading midstream water services position to drive additional growth in our natural gas and crude oil gathering and processing businesses. Thank you to the entire WES workforce for your hard work and dedication to our partnership. And with that, we'll open the call up for questions.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Thank you.

Operator

Your first question comes from the line of Keith Stanley at Wolfe Research. Your line is open.

Keith Stanley
Director at Wolfe Research, LLC

Hi. Good morning. Wanted to start on the funding for ARRIS. So you're issuing over $1,000,000,000 of equity for the deal in a leverage neutral way. The company has excess balance sheet capacity today.

Keith Stanley
Director at Wolfe Research, LLC

So can you talk to that financing decision? I guess, with the stock at yielding 9%, I think you'd get it a lot more accretion if you use more cash on the deal.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Yes. Thanks for that. It's Oscar. So when we looked at this, we had the opportunity to do a transaction that's immediately accretive to really all our metrics on a per unit basis and to finance the leverage neutral. We think that gives us the kind of capability to lean into one, our organic growth projects, which are increasing as we talked about, but also to position us for additional consolidation opportunities and gas and oil as they arise.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So given metrics here, we thought it was a great opportunity to just preserve the balance sheet and set us up for additional opportunities in the near term.

Keith Stanley
Director at Wolfe Research, LLC

Okay, great. Thanks for that. Second one, I guess, just from a business mix perspective, you make the point on the slides that water is still only 16% of EBITDA with the transaction. It's a big part of your growth strategy and capital plan though. So where do you see water kind of as a percentage of the company going forward?

Keith Stanley
Director at Wolfe Research, LLC

And is there any limit or mix that you're going for?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

I don't think we had a specific target mix. We firmly believe the water business has evolved into a midstream, a clear midstream type of business just like gathering and processing for oil and gas. If you look at the commercial contracts that they have, the dedications and the MVCs, it looks just like the rest of our business. So commercially, we're sort of happy with any of the three streams that we support and that really helps us with our customers and helps them with overall integrated flow assurance. In terms of the business mix, we kind of like this 15% range.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

When we're highly successful on a Pathfinder, we'll creep up a little bit closer to 20%. We're probably pretty happy with that mix. Thank you. Thank

Operator

you. Your next question comes from the line of Gabriel Moreen at Mizuho. Your line is now open.

Gabriel Moreen
Gabriel Moreen
Managing Director at Mizuho Financial Group, Inc.

Hey, good morning team. I just wanted to ask about following up sort of on the water deal. And can you just talk about systems around ARRIS and going to New Mexico here? Are there other privately held systems where you view the opportunity to continue to consolidate around here? And then also from a regulatory standpoint, you're making an entry into New Mexico, just your views on doing business in that state versus in Texas, particularly on the waterfront, whether it's permitting disposal wells or what have you, what your views are there?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thanks for that, Gabe. In terms of again, ARRIS was our number one sort of focus opportunity given their sort of midstream structure for us in the water business. When you look at the map, it really completes our system in the Delaware Basin. So we're pretty happy with the combination here and don't see a lot of need to continue to add to the system from here in an inorganic way. And frankly, the commercial opportunities increased dramatically for both entities with the combination.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So I think that'll help us on that front. We've been looking for a way, we operate in a small way in New Mexico today across streams and we've been looking for a way to grow in New Mexico. So we're comfortable with the regulatory environment. We have experience there obviously. And so we don't see any concern there with sort of those kind of issues.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

In fact, we think that the ability to move water across state lines and across the combined systems is going to be a critical feature in optimizing the assets and frankly increases commercial opportunities for Pathfinder in the long run as well. So we really think this combination gives us a unique position in the space.

Gabriel Moreen
Gabriel Moreen
Managing Director at Mizuho Financial Group, Inc.

Thanks, Oscar. And then maybe if I can pivot to the FID on Loving II, I think maybe a little bit sooner than some folks were expecting. You talked about still needing some offloads and maybe having that baseload some of the plant. In the past, you've also had some commitments from some of your producers to baseload new plants. Can you talk about that?

Gabriel Moreen
Gabriel Moreen
Managing Director at Mizuho Financial Group, Inc.

And also a lot of new plan FIDs. Are you playing a little more offense and being a little more aggressive here in terms of the FID of this plant maybe relative to some of your historical plan FIDs?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Yeah, I think that's right. So historically we've taken a very conservative approach and built up an offload portfolio that ultimately puts the size of a plant. And then at that time would take FID and two years later you'd have a plant. We've probably seeded a little market share with that strategy in the past. Here we've spent a lot of time with our existing dedication customers and producers to really understand their medium and long term sort of view on where their gas production was expected over the next few years.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

And so really we're thoughtful about this and had the opportunity to go ahead and take that by the design of North Loving, the area, and then North Loving one sort of built in the opportunity to move quickly on an additional train. We have the space. We already had much of the design work done in line with completing the first one. So we are continuing to use offloads today. We see growth in gas with our producers.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We're aligned with the direction the basin is going in terms of increasing GORs as well. So we have a lot of confidence and visibility this time and decided we'd go ahead and move before waiting to have a completely full plant from the start.

Gabriel Moreen
Gabriel Moreen
Managing Director at Mizuho Financial Group, Inc.

Thanks, Oscar.

Operator

Thank you. The next question comes from the line of Manav Gupta at UBS. Your line is now open.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Good morning. Looks like a great deal. I'm just trying to understand this a little better. You talked about, like, 40,000,000 in synergies. So how should we think about synergy capital capital?

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Would you have to spend anything to actually gain these synergies? And once this transaction closes, how should we think about the long term distribution growth enabled by this transaction?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thank you for that. Good questions. In terms of the synergy capture, the $40,000,000 is all kind of G and A and typical sort of public company consolidation synergies. So low hanging fruit that should be quick to realize. Of course, we've got to wait for this regulatory approval and shareholder vote.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So there's a lot of planning we've done and are going to do in the next couple of months into closing. So we should be able to move very quickly on realizing those synergies. As we know, we have not counted any revenue synergies or commercial opportunities that the combination will provide, which we think are significant, including the potential pull through of additional gas and oil gathering and processing based on the new large footprint. In terms of I'm sorry, your second question? Distribution growth.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Oh, I'm sorry, distribution growth. Yes. So we've continued to stand by our long term mid to mid single digit distribution growth outlook and plan. And certainly an accretive transaction helps support that. Everything we do in terms of deploying capital either sustains or grows our distribution.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

That's our core strategy. So this falls in line with that. Given where the yield is today, we don't see a lot of need to go above sort of our already indicated of distribution growth plans. And as we build distribution coverage, it's the only thing frankly we can identify as any additional risk in our story that we can control. So obviously this transaction sets us up for well in excess of 10% EBITDA growth next year.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

And we'll likely stick to something in that mid single digit range, but of course that'll be up to the board and the efficiency of how we close and execute on this transaction before we can make that determination.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Thank you so much for that. You were kind enough to give us some idea of the 2026 CapEx. And just from our modeling perspective, should we expect this CapEx bump to be twenty six and twenty seven and then fall off? Should we just expect 26 to be elevated and 27 to fall off? If you could help us understand that a little better. Thank you.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Yeah. We've got to, obviously, we've got this moment, based on what we see in our announced organic growth projects, biggest of which of course are Pathfinder and North Bowling II now. The vast majority of the capital for those projects sits in 2026. So if things remain unchanged, we would expect the CapEx to sort of normalize into 2027.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Thank you so much, sir.

Operator

You. Your next question comes from the line of Jeremy Tonet at JPMorgan. Your line is open.

Eli Jossen
Eli Jossen
Equity Research Vice President at JP Morgan

Hey, good morning. This is Eli on for Jeremy. Congrats on the strong quarter. Thanks for taking our question. Maybe just to look at the McNeil Ranch a little bit and understand how that fits into WES' long term plans for pore space and surface use opportunities.

Eli Jossen
Eli Jossen
Equity Research Vice President at JP Morgan

What kind of opportunities do you see at that asset and that might be different than the way Eris was looking at it? Thanks.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Yeah, thanks for that. We see McNeil as certainly an upside opportunity, a bit of a call option. So we do view it as a longer term upside. As you can see where the ranch sits, it's in a great location between basins and straddling the state line on the East Side, but it is a little bit far from the current structure of the systems. So on the plus side, Eris has already applied for and received permits on the Texas side of that ranch for water disposal.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So there's an opportunity there. And certainly as the basin grows and water volumes continue to grow, we see that as a great long term opportunity to expand our disposal business. In terms of surface use, I do think sort of our reach and footprint and many of our partners that we work with give us the opportunity to maybe move a bit more quickly They run the gamut of everything that frankly everybody's chasing. So we're pretty excited about having this surface area, this land.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

I think it's in a good spot and look forward to hopefully generating some value within the long run.

Eli Jossen
Eli Jossen
Equity Research Vice President at JP Morgan

Awesome, thanks. Then, you know, maybe just thinking about the impact and some of the feedback you've gotten from Conoco or Chevron, you know, where do they stand on this? And maybe if you could also just kind of touch a little bit on the pathway to a deal approval from here. I know you talked about a 4Q25 close, but just what kind of hurdles do you see there to kind of getting this thing finished? Thanks.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Yeah, thanks for that. So honestly, we've gotten support from 42% Aris' voting shareholders in support for the transaction in terms of the largest shareholder and customer that's ConocoPhillips. We obviously already do a lot of business with Conoco today and have a great relationship there and have spent time with them as part of this transaction in making sure that they and we were aligned in what we're trying to do here. So we're very happy with that relationship. And obviously just a week or two ago Conoco extended their long term contracts and dedication with ARRIS, so we're super pleased about that.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We also of course do a lot of work with Chevron, Oxy as well, and Mubert. So we've got some great history with the major customers here, But this transaction does do a nice job of sort of enhancing those business with those third party customers. So it's a big positive. In terms of hurdles, I don't think we see anything. I think the regulatory process should be pretty standard and we'll follow all the rules and move that along as quickly as we can and support that.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

And again, to also support Eris and the filing of their proxy and their shareholder vote. So those are just pretty standardized processes. They just take a little time. But again, we're pretty confident that we should be able to close the transaction middle to late fourth quarter.

Operator

You. The next question comes from the line of Zach Van Everend at TPH. Your line is open.

Zack Van Everen
Director - Infrastructure Research at TPH&Co

Hi, Thanks for taking my question. Maybe going to the capital program for the remainder of the year, looks like in the slide, the Powder percentage shifted down. Is this just a dynamic of the North Loving plant adding to the Permian? Or are you guys spending a little bit less than expected up in the Powder?

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

We are spending a little bit less in the Powder. We've seen some projects just shift around from a timing perspective. And so, especially as we get towards the latter part of the year, you'll see stuff slip out of 25 and into 26. So, yes, you're right. You have seen that shifted down.

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

And then when you add in the incremental capital as it would relate to North Leving, that's going to increase the Delaware a little bit.

Zack Van Everen
Director - Infrastructure Research at TPH&Co

Got it. That makes sense. And then maybe you talked to volumes being up across the board in '26. I know it's still early, but maybe just a quick break out of where most of that growth will be. I assume Delaware, but is DJ still kind of in that flattish range and then maybe anywhere else you guys are expecting growth?

Kristen Shults
Kristen Shults
SVP & CFO at Western Midstream Partners

Yeah, so for next year for 2026, agree with you. We'd expect the Delaware to continue to increase from a throughput perspective. And the DJ, we'll see how the rest of this year turns out in terms of wells coming online and then obviously we're still waiting for a producer's forecast. A lot's going to change in the next four months even and into January and February with updated producers' forecasts. So we'll give some more thoughts and guidance around what 2026 will look like, maybe closer to the Q3 end of this year and then into next year.

Zack Van Everen
Director - Infrastructure Research at TPH&Co

Got it. Appreciate the time. Thanks, everyone. Thank you.

Operator

Thank you. Your next question comes from the line of Elvira Scotto at RBC Capital Markets. Your line is open.

Elvira Scotto
Elvira Scotto
MD & Equity Analyst - Energy Infrastructure at RBC Capital Markets

Hey, great. Thank you. Good morning, everyone. I guess a couple of questions from me. On just on North Loving two, can you provide a little more detail on how you see that plant ramping when it comes online, given that you've kind of shifted from doing a lot of offloads before FIDing a plant?

Jonathon VandenBrand
Jonathon VandenBrand
SVP - Commercial at Western Midstream Partners

Hey, Elvira, this is John. No, I think it's a great question. Like Oscar mentioned, we still continue to have a lot of interconnectivity on the offload side and are utilizing those to the extent we have volumes above the system. You saw the note that the plant reached full operational capacity already. And so we're very positive that as North Plumming two comes on, we're going to have significant amount of volume day one upon that plant coming on.

Jonathon VandenBrand
Jonathon VandenBrand
SVP - Commercial at Western Midstream Partners

I think Oscar mentioned that we were just able to make this decision based on the strength of our underlying contracts and frankly the success of the organic business that we've had over the last twelve to eighteen months with just new deals that continue to add additional volumes to our system. So across the strength of the existing contracts and those new ones, it gave us the line of sight to not only have the confidence to pull the plant, but to know that there'll be a substantial amount of volumes day one of it coming online.

Elvira Scotto
Elvira Scotto
MD & Equity Analyst - Energy Infrastructure at RBC Capital Markets

Okay, great. That's helpful. Thank you. And then just a little bit on capital allocation. So, do you think about organic growth versus additional bolt on opportunities?

Elvira Scotto
Elvira Scotto
MD & Equity Analyst - Energy Infrastructure at RBC Capital Markets

And then given this expanding your footprint in New Mexico, For continued growth in New Mexico, do you expect that to be more organic? Or do you think you'll need to do some more bolt ons there?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Good question. I think M and A, as we talked about before, really does have to compete with organic growth from both the returns perspective. But we also think from a risk perspective, organic has always, in our minds, bit de risked relative to acquisitions. So it has to be really competitive. And I think in the case of ARRIS, we've sort of achieved all those goals and really checked every box in terms of our M and A framework and what we shoot for in sort of the perfect deal, if you will.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

In terms of where we go from here, same thing. Again, we continue to see a significant amount of organic opportunity across all our core basins. So we expect some more success there. It does make us a little more picky on the M and A side. Of course, again, everything we do has to sort of sustain and grow the distribution.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So we've got some pretty good guardrails on how we think about value on acquisitions. And that's why it's really important that when we do these things, we have a real opportunity to add value to a transaction and have synergies as we do in the ARRIS deal. So it'll be a mix I think in terms of New Mexico specifically. I think we have real organic opportunity as a result of this added footprint, but certainly if there's an opportunity to do something that hit all our metrics as this deal does, we'd be open minded to adding capacity in any of our streams, but particularly gas, I would say.

Elvira Scotto
Elvira Scotto
MD & Equity Analyst - Energy Infrastructure at RBC Capital Markets

Thank you. Thank you.

Operator

Thank you. The next question comes from the line of Wade Sukey at Capital One. Your line is open. Wade, your line is open. Please unmute your phone line.

Wade Suki
Wade Suki
Equity Analyst at Capital One Financial

Okay. Can you all hear me okay?

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We can hear you now.

Wade Suki
Wade Suki
Equity Analyst at Capital One Financial

Wonderful. Thank you. Apologize. And I apologize if you already addressed this question on the call. But going back to ARRIS, as you all are well aware, there's some sort of nontraditional things in here with mineral extraction and thinking about the industrial water business in particular.

Wade Suki
Wade Suki
Equity Analyst at Capital One Financial

Are these all areas you all plan on retaining, expanding? Are things that you might consider outsourcing or jettisoning maybe at some point? Maybe give us some color on some of these other pieces of the Eris business, if you don't mind.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

You bet. Actually, Eris' efforts in the consortium and their other technology including industrial water were some of the more appealing parts, exciting parts of business for the very long term. Obviously the more options we have in solving our producers' water issues in the Delaware Basin the better. And so initially obviously we've been as an industry focused on disposal and then recycle and now other uses for water becoming really important. Advanced treatment technologies are going to be really, really key.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

So we're pretty excited about all those features. We see real opportunity in the long term on even industrial water. But again, our core and so forth is sort of the midstream business, the traditional midstream business and supporting our oil and gas producing customers. So that's our focus. But I will say, do believe we can bring a lot more resources to this technology effort than they really had access to on a standalone basis.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

And so, we're very excited about it. We think these opportunities are going to be beneficial in the long run.

Wade Suki
Wade Suki
Equity Analyst at Capital One Financial

Great. Thanks so much. Congrats.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thank you.

Operator

Thank you. There are no further questions at this time. Mr. Oscar Brown, I turn the call back over to you.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

Thank you so much. And thanks, everyone, for your interest in Western Midstream and your participation on this earnings call. We're really gratified that we've already been able to see the results of our prudent growth strategy by doing two things that are very hard to do at the same time. And that is improve our overall cost structure and process efficiency while executing on growth opportunities. In fact, the former truly enables the success of the latter and we've only just begun on this journey.

Oscar Brown
Oscar Brown
President, CEO & Director at Western Midstream Partners

We look forward to welcoming Eris and its stakeholders to the WES partnership later this year. Thank you again to everyone on the WES team for an incredible start to the next phase of our partnerships evolution. There's so much to do and you've already proven that you're all up to the challenge. We look forward to seeing investors and analysts at the upcoming conferences later this month. And with that, we'll close the call.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

Executives
    • Daniel Jenkins
      Daniel Jenkins
      Director - IR
    • Oscar Brown
      Oscar Brown
      President, CEO & Director
    • Danny Holderman
      Danny Holderman
      SVP & COO
    • Kristen Shults
      Kristen Shults
      SVP & CFO
    • Jonathon VandenBrand
      Jonathon VandenBrand
      SVP - Commercial
Analysts
    • Manav Gupta
      Executive Director at UBS Group
    • Keith Stanley
      Director at Wolfe Research, LLC
    • Gabriel Moreen
      Managing Director at Mizuho Financial Group, Inc.
    • Eli Jossen
      Equity Research Vice President at JP Morgan
    • Zack Van Everen
      Director - Infrastructure Research at TPH&Co
    • Elvira Scotto
      MD & Equity Analyst - Energy Infrastructure at RBC Capital Markets
    • Wade Suki
      Equity Analyst at Capital One Financial
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