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DATE
Aug. 7, 2025, 2 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Oscar Brown
Chief Operating Officer — Danny Holderman
Chief Financial Officer — Kristen Schultz
Senior Vice President, Commercial — Jon VandenBrand
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TAKEAWAYS
Adjusted EBITDA-- $618 million in adjusted EBITDA for the second quarter, the highest inWestern Midstream Partners(WES -4.76%)'s history, reflecting sequential improvement.
Net income attributable to limited partners-- Net income attributable to limited partners (GAAP) was $334 million.
Natural gas throughput-- Natural gas throughput rose 3% sequentially, driven primarily by new Delaware Basin wells and partially offset by South Texas plant turnarounds.
Crude oil and NGLs throughput-- Crude oil and NGLs throughput increased 6% sequentially, supported by new Delaware Basin wells and higher equity investment throughput.
Produced water throughput-- Produced water throughput rose 4% sequentially, attributed to new Delaware Basin wells coming online.
Adjusted gross margin (natural gas)-- Adjusted gross margin for natural gas decreased by $0.02 per Mcf from the prior quarter, mainly due to reduced NGL volumes, lower pricing, and contract mix shifts.
Adjusted gross margin (crude oil and NGLs)-- Adjusted gross margin for crude oil and NGLs fell by $0.15 per barrel sequentially, largely due to normalized timing of distributions and increased equity investment throughput with lower margins.
Free cash flow-- $388 million in free cash flow, with $33 million remaining after the distribution payment in May.
Net leverage ratio-- Net leverage ratio was 2.9 times at quarter end, maintained after retiring $337 million of senior notes with cash on hand in June.
Quarterly distribution-- $0.91 per unit quarterly distribution, unchanged from the previous period, payable on Aug. 14 to holders of record on Aug. 1.
ARRIS Water Solutions acquisition-- Announced bolt-on valued at $2 billion including assumed net debt, at about 7.5 times 2026 consensus EBITDA, and targeting $40 million of cost synergies.
ARRIS deal financing-- The deal will be financed with up to 28% cash and 72% WES units, with pro forma net leverage expected to remain at approximately 3 times post-transaction.
Produced water disposal capacity-- Exceeds 3.8 million barrels per day pro forma for ARRIS, as stated in the call.
ARRIS customer diversification-- Adds over 625,000 acres of dedications and long-term minimum volume commitments, including contracts withChevron(NYSE: CVX),ConocoPhillips(NYSE: COP),Occidental(NYSE: OXY), and Mewburn.
Organic growth at North Loving-- A second 300 MMcf/d train was sanctioned, raising North Loving capacity to 550 MMcf/d and increasing total West Texas processing to approximately 2.5 Bcf/d by early 2027.
Operational cost reductions-- Permanent annual run-rate savings of approximately $50 million have been identified through process, procurement, and maintenance improvements.
2025 capex guidance-- 2025 capital expenditures remain within guidance, now expected at the top end of the $725 million-$775 million range due to North Loving Two and the ARRIS closing timeline.
2026 capital expenditure outlook-- Capital expenditures for 2026 are now anticipated at a minimum of $1.1 billion, as most Pathfinder and North Loving Two spending will occur in that year.
Year-over-year throughput growth forecast-- Western Midstream Partners continues to target mid-single-digit percentage increases in natural gas and produced water throughput, and low-single-digit growth for crude oil and NGLs, portfolio-wide, excluding divestitures, on a year-over-year basis.
Distribution policy-- Intent announced for distribution growth to trail earnings growth, prioritizing increased coverage and cash flow certainty.
Long-term financing position-- Management expects elevated 2026 capex and ARRIS deal funding to keep net leverage around 3 times, while affirming sufficient financial flexibility for future expansions.
SUMMARY
The second quarter featured record adjusted EBITDA, expanded throughput across key product lines, and operational enhancements that led to permanent cost savings. Management outlined that the ARRIS Water Solutions acquisition will materially expand Western Midstream Partners' produced water capacity, enhance customer diversity, and provide significant cost synergies. Sanctioning an additional processing train at North Loving signals confidence in visible, long-term natural gas and produced water demand, with explicit throughput and capex forecasts supporting investment in organic growth. Permanent cost efficiencies have lowered Western Midstream Partners' run-rate expenses, while a leverage-neutral structure for the ARRIS acquisition is designed to preserve balance sheet strength. The partnership confirmed that distribution coverage will be prioritized above pace of distribution increase, with anticipated free cash flow and investment-grade credit metrics supporting ongoing expansion plans.
Oscar Brown said, "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."
The ARRIS acquisition brings over 625,000 acres of service dedications with minimum volume commitments from investment-grade counterparties, immediately supporting Western Midstream Partners' distribution.
Enhancements to maintenance and turnaround processes have already contributed to reduced downtime and annualized cost savings of approximately $50 million, as identified in 2025, helping to offset inflationary pressures on variable costs.
North Loving Train One achieved full operational capacity within a month of start-up; ongoing offloads indicate the necessity and demand visibility for the accelerated addition of North Loving Two.
Leadership stated that 42% of ARRIS shareholder votes are already committed in support of the deal, and recent contract extensions by ConocoPhillips further stabilize future revenue streams.
Western Midstream Partners maintains its guidance for year-over-year portfolio throughput growth, with the Delaware Basin remaining the primary growth engine in 2025.
INDUSTRY GLOSSARY
MVC (Minimum Volume Commitment): Contractual minimum product quantity a customer must deliver or pay for, used in midstream contracts.
Basin offload: The practice of diverting throughput to plants or systems outside a company's own to manage capacity excess or location constraints.
Train (processing train): A distinct facility or unit within a gas processing plant capable of processing a specific volume of product independently or in parallel with other trains.
Pore space: Subsurface geological formations used for storage—in this context, refers to space available for the disposal of produced water.
Full Conference Call Transcript
Oscar Brown, our Chief Executive Officer, Danny Holderman, our Chief Operating Officer, Kristen Schultz, our Chief Financial Officer, and Jon VandenBrand, our Senior Vice President of Commercial. I'll now turn the call over to Oscar.
Oscar Brown: 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 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. 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 ARRIS 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&A strategy.
By integrating ARRIS' 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 intra-basin produced water system provider. 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' pro forma produced water disposal capacity will be more than 3,800,000 barrels per day. Additionally, ARRIS' 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. 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 ARRIS 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. ARRIS' 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 ARRIS at $2 billion, including the assumption of ARRIS' net debt and other liabilities, before transaction costs. This implies approximately 7.5 times 2026 consensus EBITDA inclusive of $40 million of estimated cost synergies. Based on this, the acquisition is expected to be accretive to 2026 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 forma 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.
This 300 million cubic feet per day natural gas processing train will increase the North Loving plant capacity to 550 million cubic feet per day and take our total West Texas complex processing capacity to approximately 2.5 billion cubic feet per day by early in 2027. After evaluating multiyear 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 2025 start-up, 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. 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.
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: 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.
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 $0.02 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.
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. 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 year-over-year throughput to increase by mid-single digits percentage growth for both natural gas and produced water and low single digits percentage growth for crude oil and NGL. For year-over-year comparative purposes, these expectations exclude the volumes associated with the noncore asset sales that closed in early 2024.
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. Going forward and based on current producer forecasts, 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, our 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.
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 Ultima pipeline to our Chepeda plant in September. With that, I'll turn the call over to Kristen to discuss our financial performance during the second quarter.
Kristen Schultz: Thank you, Danny, and good morning, everyone. During the second quarter, we generated net income attributable to limited partners of $334 million and adjusted EBITDA of $618 million. Relative to the first quarter, our adjusted gross margin increased by $18 million. 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 for approximately 75% of our utility cost portfolio-wide from our producing customers. Turning to cash flow. Our second quarter cash flow from operating activities totaled $564 million, generating free cash flow of $388 million. Free cash flow after our first quarter 2025 distribution payment in May was $33 million.
Focusing on capital markets activities, we retired $337 million 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 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. 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 million. 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 two, 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 $725 million to $775 million. Looking ahead to 2026 and recognizing that the majority of expenditures related to Pathfinder and North Loving two will be incurred during that year, we now expect 2026 capital expenditures to be at least $1.1 billion.
Given that both Pathfinder and North Loving II are short-cycle capital with expected returns of at least mid-teens on an unlevered basis, we expect these investments to drive substantial EBITDA growth beginning in 2027. 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 forecasts, 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 a 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.
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: Thanks, Kristen. Before we open it up for Q&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 position 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. 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, supported by minimum volume commitments and cost of service protections, further enhances the stability and predictability of our future profit 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 2025 operational and financial goals, and the Pathfinder pipeline and North Loving two organic growth projects, as well as the ARRIS acquisition, prudently accelerate our growth plans for 2026, 2027, and beyond. 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. Thank you.
Operator: At this time, I would like to remind everyone, in order to ask a question, your first question comes from the line of Keith Stanley at Wolfe Research. Line is open.
Keith Stanley: Hi. Good morning. Wanted to start on the funding for ARRIS. So you're issuing over a billion of equity for the deal in a leverage-neutral way. You know, the company has excess balance sheet capacity today. So can you talk to that financing decision? I guess, especially with the stock at yielding 9%. You know, I think you'd get a lot more accretion if you use more cash on the deal.
Oscar Brown: Yeah. No. Thanks for that. It's Oscar. So when we look 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. I think that gives us the kind of capability to lean into one, organic growth projects which are increasing as we talked about, but also to position us for additional consolidation in gas and oil as they arise.
Keith Stanley: Arise.
Oscar Brown: So, you know, 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: Great. Thanks for that. Second one, I guess, just from a business mix perspective, you make the point on the slides that you know, 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? And is there any limit or mix that you're going for?
Oscar Brown: Yeah. I don't think we have a specific target mix. We firmly believe the water business has evolved into a midstream, a clear midstream 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, you know, we're sort of happy, you know, with any of the three streams that we support. And it really helps us with our customers and helps them with overall integrated flow assurance. In terms of the business mix, you know, we kinda like this 15% range.
You know, when we're highly successful on a Pathfinder, it will creep up a little closer to 20%. Probably pretty happy with that mix.
Keith Stanley: Thank you.
Operator: Your next question comes from the line of Gabriel Moreen at Mizuho. Your line is now open.
Gabriel Moreen: Hey, good morning team. I just wanted to follow 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? 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: Thanks for that, Gabe. In terms of again, we're you know, ARRIS was our number one sort of focus opportunity given their sort of midstream structure. For us in the water business. And 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. You know? 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. 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: Thanks, Oscar. And then maybe if I can pivot to the FID on Loving two, I think maybe a little bit sooner than some folks were expecting. You talked about still needing some offloads and maybe having that base load some of plant. In the past, you've also had some commitments from some of your producers. To baseload new plants. Can you talk about that? 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 at this plan, maybe relative to some of your historical plan FIDs?
Oscar Brown: Yeah. I think that's right. So historically, we've taken a very conservative approach and built up an offload portfolio. That ultimately eclipsed the size of the plant. And then at that time, it 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 view on where their gas production was expected over the next few years. And so really, we're thoughtful about this and had the opportunity to go ahead and take FID 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 had 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. 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 to go ahead and move before waiting, you know, to kind of a completely full plant from the start.
Gabriel Moreen: Thanks, Oscar.
Operator: Thank you. The next question comes from the line of Manav Gupta at UBS. Your line is now open.
Manav Gupta: Good morning. Like a great deal. I'm just trying to understand this a little better. You talked about, like, $40 million in synergies. So how should we think about synergy capital? 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: Thank you for that good questions. In terms of the synergy capture, the $40 million 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 gotta wait for this regulatory approval and shareholder vote. So there's a lot of planning we've done and there 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 enlarged footprint. In turn I'm sorry. Your second question? Distribution growth. Oh, I'm sorry. Distribution growth. Yes. So the you know, 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, sustains or grows our distribution. 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 distribution growth plans. And as we build distribution coverage, it's the only thing, frankly, we can identify is 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. And we'll likely stick to something in that mid-single-digit range. But of course, that will be to the board and the efficiency of how we close and execute on this transaction before we can make that determination.
Manav Gupta: 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 2026-2027 and then fall off or 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: Yeah. We've got honestly, we've at this moment, based on what we see in our announced organic growth projects, the biggest of which, of course, are Pathfinder and North Loving two now. The vast majority of the capital for those projects sits in 2026. So if things remain unchanged, we would expect the CapEx sort of normalize into 2027.
Manav Gupta: Thank you so much, sir.
Kristen Schultz: Thank you.
Manav Gupta: Thank you.
Operator: Again, if you would like to ask a question, press star then the number 1 on your telephone keypad. Your next question comes from the line of Jeremy Tonet at JPMorgan. Your line is open.
Eli: 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 West long-term plans for pore space and surface use opportunities. What kind of opportunities do you see at that asset? And that might be different than the way ARRIS was looking at it? Thanks.
Oscar Brown: Yeah. Thanks for that. We see McNeil as certainly an upside opportunity, a bit of a call option. So we do view this 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 so the east side but it is a little bit far from the current structure of the systems. So on the plus side, ARRIS has already applied for and received permits on the Texas side of that ranch for water disposal. So there's an opportunity there. And certainly, as the basin grows, 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 fill and many of our partners that we work with give us the opportunity to maybe move a bit more quickly on surface items. And they run the gamut of everything that frankly, everybody's chasing. So we're pretty excited about having this surface area, this land. I think it's, like, in a good spot and look forward to hopefully generating some value within the long run.
Eli: Awesome. Thanks. And then you know, maybe just thinking about the impact and some of the feedback you've gotten from you know, Conoco or Chevron, you know, where do they stand on this and you know, maybe if you could also just kinda touch a little bit on the, you know, pathway to a deal approval from here. I know you talked about a fourth quarter 2025 close, but just what kind of hurdles do you see there to kinda getting this thing finished? Thanks.
Oscar Brown: Yeah. No. Thanks for that. So, obviously, we've gotten support from 42% of ARRIS' voting shareholders it supports the transaction. In terms of the largest shareholder and customer that's coming to Philips. We obviously already do a lot of business with Conoco today and have a great relationship there. And have spent time with them, you know, as part of this transaction. In making sure that, you know, they were 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.
We also, of course, do a lot of work with Chevron, Oxy as well. And Mewburn. So we've got some great history with the major customers here. But this does this transaction does do a nice job of sort of enhancing those business with those third-party customers. So it's a big positive. Terms of hurdles, I don't think we see anything. 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. And again, to also support ARRIS in the filing of their proxy and their shareholder vote. So it's really just 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: Thank you. The next question comes from the line of Zach Van Everen at TPH. Your line is open.
Zach Van Everen: Maybe go into the capital program for the remainder of the year. Looks like in the slide, the Powder percentage shifted down. Is this just the 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 Schultz: We are spending a little bit less in the pattern. 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. And then when you add in the incremental capital as it would relate to North Loving, that's gonna increase the Delaware a little bit.
Zach Van Everen: 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 breakout of where most of that growth will be. I assume Delaware, but you know, is DJ still kind of in that flattish range and then maybe anywhere else you guys are expecting growth?
Kristen Schultz: Yeah. So for next year, for 2026, agree with you. We'd expect the Delaware 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 producers' forecast. A lot's gonna change in the next four months even. Into January and February with updated producers' forecast. 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.
Zach Van Everen: Got it. Appreciate the time. Thanks, everyone.
Daniel Jenkins: 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: 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, you know, given that you've kind of shifted from, you know, doing a lot of offloads before, before, FI being a plant.
Jon VandenBrand: Hey, Elvira. This is John. No. I think it's a great question. Like Oscar mentioned, we still continue to have a lot of activity 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 Loving two comes on, we're gonna have significant amount of volume day one upon that plant coming on.
I think Oscar mentioned that we are 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 have continued 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 plan, but to know that there'll be a substantial amount of volumes day one of it coming online.
Elvira Scotto: Okay. Great. That's helpful. Thank you. And then just a little bit on capital allocation. So how do you think about organic growth versus additional bolt-on opportunities? 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'll need to do some more bolt-ons there?
Oscar Brown: A good question. I think, you know, M and A, as we've 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 is always in our minds, have been 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. There will be shoot for in sort of the perfect deal, if you will. 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. So we've got pretty good guardrails on how we think about value on an acquisitions. And that's why it's really important that when we do these things, we have a real, you know, 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: Thank you.
Operator: Thank you. The next question comes from the line of Wade Suki at Capital One. Line is open. Wade, your line is open. Please unmute your phone line.
Wade Suki: Okay. Can you all hear me okay?
Oscar Brown: We can hear you now.
Wade Suki: 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. Are these all areas y'all spend on retaining, expanding? Are these things that you might consider. Outsourcing or jettisoning maybe at some point, Maybe give us some color on the on the some of these other pieces of the ARRIS business, if you don't mind.
Oscar Brown: You bet. Actually, ARRIS' efforts in the consortium and their other technology, 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. So advanced treatment technologies are gonna be really, really key. 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, our love and then 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, I do believe we can bring a lot more resources to this technology effort. Than they really had access to on a standalone basis. And so we're very excited about it. We think these opportunities are going to be beneficial in the long run.
Wade Suki: Great. Thanks so much. Congrats.
Oscar Brown: 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: Thank you so much, and thanks, everyone, for your interest in Midstream and your participation on this earnings call. We're really glad 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, executing on growth opportunities. In fact, the former truly enables the success of the latter. We've only just begun on this journey. We look forward to welcoming ARRIS 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 partnership's 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.