Welcome to Western Midstream's First Quarter 2024 Post Earnings Call Fireside Chat with our Chief Financial Officer, Kristen Shults; and our SVP of Southern Operations, Danny Holderman. Kristen, can you start off with an overview of WES' first quarter results? And what some of the key drivers were to our strong start to the year?

Sure. Thanks, Daniel. So for the quarter, our adjusted EBITDA was a record-breaking number. We had $608 million of adjusted EBITDA this quarter. We saw increased throughput in the gas side of the business; the Delaware Basin increased by 3%, DJ by 2% and the other assets also increased. On the oil side, we were down 19% on a sequential quarter basis. However, a large part of that was just because of the divestiture of the JVs that we have. In fact, the DJ was up, again, 7% and the PRB was up 15%. So if you look at our operated asset base for oil and NGLs, we were actually up 2% quarter-over-quarter. Our water was up 7% quarter-over-quarter. So, another really strong quarter for the water business. All in all, just outperformance on the throughput side for the quarter. The cost of service rates also start on January 1 of every year, and so we saw an increase in the Delaware Basin REITs, which helped from an adjusted gross margin perspective. And right now, based on conversations with our producers, we're also having increased expectations for the remainder of the year as it relates to all the products. In fact, we increased our expectations for oil, gas, and water. We actually went from upper single digits on oil to low teens, low to mid-teens on gas to mid- to upper teens and on water from low to mid-teens to mid- to upper teens. And as of now, we're also expecting to be at the high end of our annual adjusted EBITDA guidance range, and that's going to increase our free cash flow, too.

What are our expectations for gross margin per unit for the remainder of the year?

So right now, our Q1 gross margin per unit for gas was $1.32. I expect that to be relatively constant as we're looking out over the remainder of the year. While Mentone III came online, we have a little bit of a reduction in some of the offload fees that we were paying as we move those volumes into Mentone III. We're still utilizing those offloads as we're bridging to North Loving, and there are other components that obviously go into that gross margin per unit, whether that's commodity prices or contract mix, just overall basin mix. So expect Q2 and forward to be relatively similar to Q1. On the oil side, you saw a very large jump in the gross margin per barrel from $2.43 in Q4 to $2.92 in Q1. I expect that $2.92 to be relatively constant over the remainder of the year as well. The biggest driver behind that increase was just the sale of the JVs. Those are lower margin per unit assets that were in the portfolio, and so now you're seeing an overall increase in the gross margin per barrel because they're no longer there. On the water side, there is also a large increase in the gross margin per barrel went from $0.86 in Q4 to $0.95 in Q1, predominantly driven by the increase in the cost of service because of the rate redetermination that's effective on January 1, 2024. So expect that that's also a good run rate as we're looking at Q2 and for the remainder of the year.

Danny, can you speak to our new Mentone Train III plant at the West Texas complex?

Sure. We are very excited to bring on Mentone Train III in early April. Our construction and operations teams did an outstanding job getting construction and commissioning completed safely and on budget with our original cost estimates. Our operations team was quickly able to ramp up the train to full capacity, adding 300 million cubic feet a day of nameplate processing capacity. This represents an 18% increase to our Delaware Basin complex, bringing total processing capacity in the complex to 1.9 billion cubic feet a day. The teams continue to debottleneck the Mentone complex and optimize operations of the gathering system to make full use of the new train. In addition to the capacity add, Train III is also our most efficient train in terms of ethane recovery. It is able to recover 3% to 4% more ethane than the current 2 Mentone trains, which are themselves able to recover 10% more than the rest of the trains in the complex, allowing us more opportunity to maximize revenue relative to natural gas and NGL market pricing. We continue to lower our use of offloads, but I want to remind everybody that we will continue to have offloads until we're able to bring on our North Loving plant in Q1 of '25.

Thanks, Danny. Kristen, in our recent earnings call, management highlighted the evolution of the MLP model and how MLPs are in a stronger position today than they were 5 to 10 years ago. Can you speak to how WES fits into the new MLP model?

Sure. So we spent a little bit of time talking about this on the Q1 earnings call, specifically around the evolution of the MLP and how WES has really been a leader in the space to help optimize the MLP model. When you look back at MLPs and how they used to operate, there was a big focus on distributable cash flow, not free cash flow. In fact, there was really just free cash flow after distributions that was negative quarter after quarter. Whereas now, people have been targeting free cash flow after distributions, which is positive. And really, there are some strong principles around capital allocation and returning those back to unitholders. You see buybacks now, and that was never something that happened in the past. You see strategic acquisitions, portfolio optimizations with asset divestitures, whereas in the past, that was just assets that were dropped down by the sponsor to the partnership, and there were incentive distribution rights that existed with the sponsor. Now, leverage is substantially lower than it has been in the past. In fact, for us, by the time this year is over, we'll be at or below 3x. The MLPs have come a really long way since the old MLP model into what we want to call the new MLP model today. There are healthier balance sheets, there are stronger cash returns, there are higher earnings, and there's just more stability within the space. And so there's been a big paradigm shift that has occurred and it's helped lower the risk that you saw across the space. One of the other things we touched on was that we believe there's room for multiples to expand. When you look back over the time period of 2011 to 2016, the average multiple was 13.5, a little bit over that. And now MLPs are trading right around 8x. So taking into account the paradigm shift that has occurred and the higher earnings, increased cash flows, lower leverage, just more stability, less risk overall with MLPs, we really feel that there's room for these multiples to expand. That's what we wanted to talk about for a little while on the call and just get that conversation started and have people just take a second look at how MLPs really should be trading, especially in light of the fact that they are a really strong investment that provides tax-deferred cash flows on top of that.

Kristen, Danny, thank you both for joining us today. For our listeners, if you have any additional questions, please feel free to reach out to us. Our contact information is located in the Investor Relations section of our corporate website at westernmidstream.com.