StockNews.AI

WESTERN MIDSTREAM ANNOUNCES DELAWARE BASIN NATURAL-GAS CONTRACT AMENDMENTS IN EXCHANGE FOR COMMON UNITS AND ANNOUNCES INTERVIEW WITH CEO, OSCAR BROWN, AND CFO, KRISTEN SHULTS, DISCUSSING THESE TRANSACTIONS

StockNews.AI • 2 days

OXYCOP
High Materiality8/10

Information

HOUSTON, Jan. 20, 2026 /PRNewswire/ -- Western Midstream Partners, LP (NYSE: WES) ("WES") announced ...

Original source

AI Summary

Western Midstream Partners has successfully renegotiated its natural gas contracts to a fixed-fee structure, enhancing revenue stability and alignments with key partners like Occidental and ConocoPhillips. This transition reduces exposure to cost-of-service rates and positions WES for long-term growth while maintaining EBITDA through 2027. Overall, these developments are likely to foster investor confidence and operational efficiency for WES.

Sentiment Rationale

The shift to a fixed-fee structure lowers risk exposure and increases revenue stability, leading to a more predictable cash flow, which typically correlates with a positive response from investors. Historically, similar transitions have resulted in improved stock performance for midstream operators.

Trading Thesis

WES is well-positioned for stable growth; consider buying for 12-month upside.

Market-Moving

  • The shift to fixed-fee contracts is a significant operational enhancement for WES.
  • Reduced ownership by Occidental can lead to a more favorable valuation for WES.
  • Cumulative revenue recognition from contract liabilities could boost net income over time.
  • Operational flexibility maintained through strategic partnerships with industry giants.

Key Facts

  • WES renegotiated contracts with Occidental, shifting to a fixed-fee structure.
  • New agreements with ConocoPhillips enhance revenue diversification and reduce related-party revenue.
  • Occidental will transfer $610 million worth of WES units, reducing its ownership to 40%.
  • Minimizing cost-of-service contracts aids in improving long-term earnings visibility.
  • WES expects no EBITDA reduction through 2027, ensuring operational stability.

Companies Mentioned

  • Occidental Petroleum Corporation (OXY): Reducing ownership could stabilize WES's stock and increase independence.
  • ConocoPhillips (COP): New contracts may diversify revenue and support WES's long-term growth strategy.

Corporate Developments

This article fits under Corporate Developments as it details strategic contract modifications involving key partnerships and revenue structures. These changes are crucial for WES's operational and financial future, reflecting a proactive approach to risk management.

Western Midstream Announces Strategic Contract Amendments in Delaware Basin

Company Symbol: WES

Overview of Recent Developments

Western Midstream Partners, LP (NYSE: WES) has made critical amendments to its natural-gas gathering and processing contracts in the Delaware Basin, collaborating with a subsidiary of Occidental Petroleum Corporation. These revisions replace the existing cost-of-service structure with a more straightforward fixed-fee model, bolstered by an acreage dedication.

Additionally, WES has entered into new agreements with ConocoPhillips, further facilitating the delivery of natural gas volumes. The restructuring not only aims to enhance drilling economics but also encourages the development of acreage supported by WES’s comprehensive natural-gas, crude-oil, and produced-water systems.

Transaction Highlights

  • Fixed-Fee Structure Implementation: The transition to a fixed-fee arrangement aligns WES's interests more closely with those of its customer base, which is crucial as the company continues to establish itself as a standalone midstream entity.
  • Revenue Impact: Post-amendment, approximately 9% of WES's total revenue will still be tied to cost-of-service rates. However, this percentage will diminish over time, setting the framework for increased revenue predictability.
  • Minimum Volume Commitments (MVCs): The amended contract provides volumetric protection through substantial MVCs, ensuring revenue stability going forward.
  • New Contract with ConocoPhillips: WES’s new agreement with ConocoPhillips diversifies its revenue streams, reducing reliance on related-party revenue sources by over 10%.
  • Common Units Transfer: In these transactions, Occidental will transfer 15.3 million WES common units, equating to approximately $610 million in partnership interests, adjusting Occidental’s ownership in WES from 42% to 40%.

Financial Implications and Expectations

WES anticipates that the operating cash flow reductions resulting from these agreements will largely be counterbalanced by distribution savings from the common unit redemption. The transfer value of the common units will be recorded as an existing liability recognized in revenue, averaging about $165 million annually through the original contract term ending in 2032.

Management's forecast indicates that the shift to a fixed-fee structure will not adversely affect Adjusted EBITDA through 2027. Starting 2026, revenues and Adjusted EBITDA will incorporate the contract liability recognition, transitioning fully to fixed-fee rates by 2033.

The company also plans a 2026 growth-oriented capital program of approximately $1.1 billion, maintaining a net leverage ratio close to 3.0x Adjusted EBITDA.

Management Commentary

Oscar K. Brown, President and CEO of WES, remarked, "These changes represent a significant step in WES's continuing evolution after becoming a standalone midstream enterprise. The move from a cost-of-service model to a fixed-fee arrangement is a timely transition that strengthens our alignment with our largest producer and enhances the clarity of our long-term earnings potential.”

He stressed that the revised contracts in exchange for common units realign WES’s equity capital structure for long-term benefits and are expected to enhance Adjusted EBITDA per unit, ultimately contributing value to all unitholders.

Upcoming Key Dates

  • Occidental Contract Terms: Effective January 1, 2026
  • ConocoPhillips Contract Terms: Effective February 1, 2026
  • Redemption of Common Units: Scheduled for February 3, 2026

Related News