Earnings Call Transcript - WES Q1 2020

Operator, Operator

Good day, and welcome to the First Quarter 2020 Western Midstream Partners Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Abby Dempsey, Investor Relations.

Abby Dempsey, Investor Relations

Thank you. I'm glad you could join us today for Western Midstream's first quarter 2020 conference call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's Form 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today. Relevant reference materials are posted on our website. With me today are Michael Ure, our Chief Executive Officer; Craig Collins our Chief Operating Officer; and Mike Pearl, our Chief Financial Officer. I now would like to turn the call over to Michael Ure.

Michael Ure, CEO

Thank you, Abby, and good afternoon, everyone. I hope this call finds you and your family safe and healthy during these unprecedented times. I'd like to begin this call by thanking our employees for their continued focus, diligence and adaptability, all of which directly contributed to our truly outstanding first quarter results. Our first quarter results are indicative of the operational and financial outperformance that our employees and assets are capable of delivering in a normalized environment. Our results not only show the capabilities that exist within our best-in-class assets that we expect will deliver repeatable future successes when we reach the other side of this ongoing pandemic, but these results also improve our debt metrics and demonstrate our ability to generate meaningful positive free cash flow. In light of the pandemic's effect on commodity prices and producer activity, we recently announced capital and other planned cost reductions that we fully expect to realize in 2020, accompanied by a 50% reduction to our quarterly distribution. We believe these announced measures ensure our near-term financial health and allow us to emerge from the currently dislocated market opportunistically positioned with financial flexibility. The current market environment has forced us to reexamine every aspect of our operations, to identify incremental cost-saving opportunities and pursue efficiencies that will improve our profitability as the sector and overall economy improves. In short, we are focused and committed to delivering improved results with fewer resources by adopting an entrepreneurial mentality that emphasizes broadening employee skill sets and areas of responsibility. As anticipated, establishing WES as a standalone midstream company has furthered cost efficiency realizations, and we have embraced the current environment to challenge our legacy corporate organizational structure and functions. The realizable value attributable to past activities, investments and the overall reliance on the talent and creativity of our focused employee base to continue identifying efficiencies and cost savings. The current environment is far from ideal but opportunistic for WES in the sense that it allows and forces us to focus on improving every aspect of our operations and related corporate functions. This has elicited actionable plans that are imminently capable of delivering incremental cost efficiencies for years to come. Notwithstanding our unbridled enthusiasm for our first quarter results and anticipated cost savings initiatives, we recognize the pandemic's adverse effect on worldwide economic activity and the related disruption to the energy sector. We were in early, proactive and constructive contact with all of our customers, most of which communicated deferrals and cancellations of expected drilling campaigns. Our customers continued to revise drilling and completion activities and curtailment plans, which is prompting us to take steps to protect and strengthen our financial wherewithal. We recently announced a 45% or more than a $400 million reduction to our current year capital guidance, a $75 million reduction to current year G&A and operating and maintenance costs, and a 50% reduction to our quarterly per unit distribution. As a result of these actions and up-to-date producer communications, we anticipate 2020 adjusted EBITDA between $1.725 billion to $1.825 billion, which we expect to result in meaningful 2020 free cash flow after distributions. This guidance reflects the best and current information we have at this time. We will continue monitoring producer activity levels and may adjust our 2020 guidance and future distribution levels based on incremental information that may be communicated to us by our customers in the upcoming months. Today, we believe the strength of our first quarter results and the most recent customer-provided activity level information support our revised 2020 guidance. Our revised guidance, announced cost savings initiatives, and reduced quarterly distributions position us to generate free cash flow after distributions so that we can prioritize leverage reduction and assume a financially offensive stance once the current market dislocation abates. With that, I'll turn the call over to Craig who will discuss our first quarter operations and forecast 2020 in-basin activity and capital plans.

Craig Collins, COO

Thanks, Michael. First, I would like to congratulate our team for its recognition by the GPA Midstream Association for outstanding safety performance in 2019, where we were awarded first place in the division one category for companies with greater than one million reported man hours. A sincere thank you to our employees for continued dedication to safety. Operationally, gas throughput increased by approximately 150 million cubic feet per day on a sequential quarter basis, representing a 3% increase. This increase was primarily driven by higher throughput from our DJ Basin Complex and West Texas Complex. Also, the second Latham train commenced operations during the first quarter. As a result of modifications that we made during construction and following performance testing, we expanded the processing capacity by 50 million cubic feet per day, for a total processing capacity of 250 million cubic feet per day. As you may have noticed in our recently issued financials, we now disclose metrics attributable to water separately from crude and natural gas liquids, for added transparency into our business, as a result of the water business becoming an increasingly significant portion of our portfolio. Our water throughput increased by approximately 105,000 barrels per day, representing an 18% sequential quarter increase. Our per barrel water disposal gross margin of $0.97 is consistent with the prior quarter. Our crude oil and natural gas liquids operated assets experienced a sequential quarter throughput increase of approximately 14,000 barrels per day, primarily as a result of increased throughput in West Texas. Annual cost of service rate re-determinations and increased Delaware Basin throughput supported an increase in our per barrel margin, related to crude oil and natural gas liquids throughput from the prior quarter by $0.16 to $2.43 per barrel. Additionally, the Front Range and Texas Express pipeline expansions were placed into service at the beginning of April. Many of our customers have already taken steps to reduce drilling activity in the basins in which we operate. Accordingly, much of the originally forecasted growth for this year will not materialize. Notwithstanding, our capital asset and spending profile is scalable relative to and in response to fluctuations in producer activity. Our capital plan allows us to reduce well connect, compression and gathering capital rapidly and significantly in response to reduced in-basin activity. This demonstrates the versatility and flexibility offered by our asset portfolio and furthermore underscores the ongoing value attributable to our prior period investments into scalable, backbone infrastructure assets located in Premier U.S. onshore basins. Should in-basin activity ramp up in 2021 and beyond, we likewise are poised to capture meaningful incremental value by leveraging our existing backbone infrastructure to capitalize on intended economy of scale opportunities that are uniquely inherent to our asset portfolio. We continue to build out the fourth north Loving ROTF Train, with completion expected in the fourth quarter of 2020. This project is reflected in our most recent capital guidance. I will now turn the call over to Mike, to discuss our first quarter financial results and our financial focus for 2020 and beyond.

Mike Pearl, CFO

Thanks, Craig. Yesterday, we reported an unequivocally outperforming quarter with adjusted EBITDA of $514 million and free cash flow of $215 million. The 15% sequential quarter increase in adjusted EBITDA resulted from increased throughput across all products in the Delaware Basin and natural gas throughput in the DJ Basin. We believe that current broad-based market dynamics dictate that all companies, energy sector and beyond, prioritize balance sheet strength so that they are positioned to manage through cyclical downturns, including the existing and unpredictable pandemic-fueled market dislocation, that has turned all of our lives upside down. In light of evolving macroeconomic conditions and the current state of the sector, we have pivoted to focusing on free cash flow as a financial performance indicator, as opposed to the conventional MLP standard metrics of distributable cash flow and distribution coverage. These legacy sector metrics continue to carry comparability value for a distribution-focused enterprise but lose significance as compared to a market standard free cash flow metric that is more germane to a total return-focused enterprise like WES that is positioned to withstand economic downturns and poised to be opportunistic at any stage of the business cycle. Our recent distribution reduction was undertaken with a view toward becoming a sustainable, free cash flow, after distributions enterprise. Moreover, the recently announced distribution cut positions WES to generate free cash flow after distributions as early as this year. Notably, if the currently applicable per unit distribution, was in effect for the first quarter of 2020, WES would have been free cash flow positive after distribution. To-date capital investments have enabled our immediate shift to a free cash flow after distribution enterprise, which allows us to repay debt expeditiously, so that we are able to capture future value from deploying financial resources to execute on highly accretive opportunities, whether acquisitive or corporate finance in nature. Returning to first quarter results, low commodity prices and reduced producer activity triggered the recognition of approximately $156 million of asset impairments primarily related to Chipeta and a $441 million goodwill impairment. These non-cash charges do not affect adjusted EBITDA or free cash flow. As we look past the first quarter of 2020 and expanding on Michael's earlier commentary regarding the COVID-19-inspired, WES retrospect, our $75 million reduction to current year G&A and operating and maintenance costs are absolutely realizable. We have altogether stopped discretionary spending, travel and the like, suspended salary increases for all personnel for the remainder of this year, and continue discovering ways to operate in a more cost-efficient manner through the identification and elimination of non-value-added and non-productive expenditures. As we continue executing on lowering our input costs, we recognize the importance, strength and sanctity of our current gathering and processing contracts. The contractual protections provided to us through the operative provisions of these contracts are a key component to our free cash flow equation, and we have no current expectation of renegotiating or amending these contracts in any manner that materially prejudices our ability to generate free cash flow after distributions over the long term. Our highly successful bond offering earlier this year, largely undrawn $2 billion revolver, lack of near-term debt maturities, and our recent actions that reduced 2020 cash outflows by approximately $1 billion all contribute to our currently advantaged liquidity position. As we begin generating positive free cash flow after distributions, we will deploy excess cash to strengthen our balance sheet by reducing leverage. We continue to target leverage below 4.5 times by year-end 2020 and below four times by year-end 2021. These targets are necessarily aspirational as they are subject to the uncertain duration and severity of the ongoing economic downturn and related energy demand shock. Finally, restoring our investment-grade credit ratings remains a priority for us, and meaningfully reducing leverage aids in this endeavor. I now will turn the call back over to Michael for concluding remarks.

Michael Ure, CEO

We recognize the difficult times in our industry and in our communities. I nevertheless remain encouraged by our first quarter outperformance, which again we consider indicative of our capabilities in a normalized economic environment. I remain confident that WES and the industry as a whole will emerge from this downturn stronger than before. And for WES, that dictates a more efficient and cost-effective business model, the achievability of which currently is being demonstrated by real-time empirical evidence of cost savings and continued efforts by WES employees to improve overall efficiencies. In closing, I would like to thank our employees for their continued dedication and the frontline individuals in our communities that are working tirelessly to keep us and our families safe and healthy during this health crisis. With that, I would like to open the line for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Today's first question comes from Shneur Gershuni with UBS. Please go ahead.

Shneur Gershuni, Analyst

Hi. Good afternoon everyone. Glad to hear everyone is safe. Maybe to start off a little bit. Your guidance isn't really down that much. I was just wondering if you can remind us what percentage of the EBITDA is protected by MVCs or take-or-pay contracts?

Craig Collins, COO

Yes, Shneur, this is Craig. We've got 65% of our gas volumes are supported by MVCs and cost of service agreements, and 78% of our liquids volumes are supported by cost of service and minimum volume commitment obligations. So we feel quite secure given those contracts and the veracity of those contracts, and we continue to look forward to working through this downturn that we're in and seeing volumes rebound with new development once that begins.

Shneur Gershuni, Analyst

Great. Perfect. As a follow-up on the guidance, I was somewhat surprised by the optimistic outlook. Given that one of your largest customers, Oxy, appears to have very few rigs operational at the moment, I wonder if there’s a possibility that 2020, despite being a challenging year, could serve as a precursor to a boost in 2021. Is there a substantial inventory that Oxy has that could help counteract the natural decline in production later this year? I’m trying to understand how they plan to recover in 2021 to offset decline rates if oil prices increase and rigs remain inactive. Could you clarify how we should be viewing the remainder of this year? Additionally, does 2021 present a significant risk to 2020?

Michael Ure, CEO

Yes, Shneur. Thank you for your question and for your comments regarding the positive unexpected results related to our guidance. We are optimistic about the first quarter and are confident in our ability to adapt to the current conditions. It's challenging to predict what 2021 will look like. We currently do not have guidance for 2021 due to the existing circumstances, so I would be cautious about providing specific guidance regarding its impact.

Shneur Gershuni, Analyst

I mean, if you're not able to provide guidance to 2021 and I appreciate that. But I'm saying the conditions for 2021 to be flat down or up, is going to be somewhat dependent on the inventory of drilled uncompleted wells that your key customers would have. I mean, if they're not drilling obviously they're not adding to that balance. So trying to understand what is the drilled uncompleted inventory today? That could at least be used for us to be thinking about directionally where '21 could go?

Mike Pearl, CFO

Yes. This is Mike. The DUC inventories have contributed to what you described as a lighter decline in guidance. However, if market activity levels do not improve throughout the rest of 2020, it's reasonable to expect a more significant decline in 2021.

Shneur Gershuni, Analyst

Okay, fair enough. I have one last question. Can you tell me if the Sanchez bankruptcy affects Western Midstream and if this is reflected in your current guidance?

Mike Pearl, CFO

So Sanchez is a 25% working interest owner at Springfield of which we own 50.1%. Springfield has individual contracts with all of the working interest owners. We're connected at the wellhead. So, obviously that's important as you want to continue to flow volumes there. We feel very strongly and we've taken steps to preserve our rights related to that. And so, we have not actually forecasted any negative impact overall because of the dynamics that I just referenced.

Shneur Gershuni, Analyst

All right. Perfect. I’ve got some more questions, but I'll step back into the queue.

Operator, Operator

Our next question comes from Spiro Dounis with Credit Suisse.

Spiro Dounis, Analyst

Hey, good afternoon everyone. I wonder if you could walk us through the cadence for the rest of the year as you're thinking about volumes here and what customers have communicated to you. Imagine Q2 and Q3 will be among the worst hit. But I guess what's being communicated or modeled so far about the ramp-up into Q4? And do you see any differences between a Delaware or DJ recover?

Craig Collins, COO

Yes. Regarding the cadence, we have taken all of the feedback we've received so far into account when providing guidance related to any reductions and activity levels. We anticipate, and indeed expect, that there will be an effect on EBITDA as the year progresses due to the limited activity and those reductions. For capital expenditures, we expect second quarter capital to remain about the same as in the first quarter. At the beginning of the year, there was a significantly different view on activity levels, and we typically stay ahead of our producing customers in this regard. During the COVID-19 situation and the OPEC-plus meetings, a large portion of our current capital budget had already been allocated. Therefore, we expect second quarter capital to be fairly similar to the first quarter but to decline noticeably for the rest of the year. Moving into 2021, we will have more flexibility to adjust our total CapEx spending if the ongoing conditions persist. We do expect to see the effects of reductions impacting Q2 and Q3. Currently, we believe that things will likely start to normalize as we approach Q4.

Spiro Dounis, Analyst

Okay. Understood. And then just thinking about that exit rate and kind of going back to Shneur's question just a little bit here, but maybe asking in the context of your leverage target of four times which Mike I think you pointed out was aspirational, which I think is sort of the right lever to kind of get to eventually. I guess, we're struggling with is the cash flow side of that and maybe what customers have communicated to you to suggest that it seems like that's going to necessitate growth in '21 versus '20 to get there. And so, as we're thinking about that exit rate that recovery in Q4 to the extent that's driven purely by a reversal of shut-ins, it sounds like to get to four times. I don't want to put the words in your mouth but just help me think about it. To get to four times, you're going to have to see some sort of increase in actual activity to get there throughout '21? Is that fair?

Mike Pearl, CFO

I think that's a fair comment, but it also doesn't consider the potential for us to divest noncore assets to further reduce leverage and bring that ratio closer to four. When I say noncore, I mean anything outside of the DJ and Delaware, including equity investments.

Spiro Dounis, Analyst

Okay. That all explained it, thanks everyone. Okay.

Craig Collins, COO

And Spiro, I would again comment that relates to the capital side, the increased flexibility into 2021 to be able to modify the capital program have greater flexibility in modifying the capital program bringing that CapEx down in the event that the activity levels don't return.

Operator, Operator

And our next question today comes from Jeremy Tonet of JPMorgan. Please go ahead.

Jeremy Tonet, Analyst

Hi good afternoon. I wanted to get some clarification on the guidance. Could you share what type of rig activity is included in your EBITDA guidance for the year? Additionally, how do you see the trajectory of the EBITDA guidance for the rest of the year? Is the second quarter expected to be lower than the first, followed by a decrease in the third quarter as well, or can you provide any insights on how that is shaping up?

Michael Ure, CEO

Yes. So in regard to your first question, there's very little to no activity that's forecasted into 2020 as it relates to the guidance that is embedded here. Again, you have as we talked about Q2 and Q3 you've got the impact of curtailments that might exist with fourth quarter I would call it unless there's a return in activity level relatively flat with Q3. So step down a little bit into Q2 as it relates to Q1 stepped down maybe a little bit further in Q3 and then Q4 roughly relatively flat with Q3.

Jeremy Tonet, Analyst

Got it. That's helpful. I wanted to understand better for my own modeling purposes. If there are no wells connected to your system, what kind of PDP declines should we be modeling or considering? I'm trying to get a clearer idea on how to approach this.

Craig Collins, COO

Yes. I would say given the activity levels having already come down significantly, we're going to see the steepest decline over Q2 and Q3 and I would expect that decline to arrest a bit during the fourth quarter and beyond as those wells come off their hyperbolic decline. So frankly, it just varies based on the maturity of the developments by each of our customers. And so it's pretty difficult to stay on average decline rate. But I would expect most of that to be showing up in Q2 and Q3 of this year.

Derek Walker, Analyst

Hey. Good afternoon. Thanks for taking my questions. Just want to get a better understanding of kind of the gross margin in the natural gas segment. It looks like it was $1.16, a meaningful step-up from the prior quarters. So I just wanted to see how much of that is the annual redetermination from the cost of service contracts? And should we think about that $1.16 number as sort of the run rate for the year?

Michael Ure, CEO

Yes. Most of that increase in the gross margin on the gas side is attributable to the increase in volumes on a relative basis from the DJ and the Delaware basins, given those are higher-margin gas molecules than the balance of the portfolio, which is on decline. So I would say that the first quarter margin for gas is probably reflective of what we'd expect the balance of the year as well.

Derek Walker, Analyst

Okay. Great. As we approach the next annual rate redetermination and considering your perspective, how should we view that rate in 2021?

Michael Ure, CEO

Yes, we evaluate the cost of service rates at the end of each year. These rates are determined based on factors such as capital, operating expenses, and both the actual and forecasted volumes, along with the necessary capital to support them in the future. We will collaborate with producers to update the cost of service models at the year's end. However, it is too early to predict what those rates will look like.

Derek Walker, Analyst

Okay. Can you provide an update on Latham II regarding utilization? Also, how does this impact your guidance?

Michael Ure, CEO

Yes, Latham is part of our DJ complex of processing. Since the plant began operating in the first quarter, it has been operating at full capacity. It is a highly efficient plant, and we prefer to keep our efficient plants fully utilized. Both Latham I and II have been running at capacity, and we have sourced some gas from our less efficient plants. However, we have plenty of processing capacity available. Given the current environment, we are well-positioned from a capital perspective in both the DJ and Delaware basins regarding our processing capacity. We expect to maintain our capital program without needing to expand processing capacity, which requires significant investment. This allows us to keep our capital program flexible and adaptable as activity levels change in the future.

Derek Walker, Analyst

Great. That’s it from me. Thank you, guys. Appreciate the time.

Operator, Operator

Our next question today comes from Sunil Sibal with Seaport Global Securities. Please go ahead.

Sunil Sibal, Analyst

Yes. Hi. Good afternoon, everybody. And thanks for taking my question. I was just kind of curious, if you could talk a little bit about more recent trends that you're seeing in Midland as well as Delaware as far as the gas to oil ratios are concerned for the producers that you serve and also produced water to oil ratios? Are you seeing any significant changes in those trends as producers are modifying completions or shutting in wells?

Michael Ure, CEO

No. We haven't seen any significant change in the complexion of that product mix across our producers. I would say over the next several months as volumes are curtailed, clearly, we may see some shift in how that looks. But in terms of a shift based on completion designs and reservoir maturities, we haven't seen a material shift from where we've been.

Craig Collins, COO

And just a clarification, Sunil, that would be just Delaware.

Michael Ure, CEO

Just Delaware.

Sunil Sibal, Analyst

Okay. Got it. And then on your guidance and then the MVCs etc., are there any of your assets which are currently flowing below MVCs?

Michael Ure, CEO

We have some contracts where the producers are below their MVCs and are paying deficiency payments. We have others. In fact, most of them, frankly, are flowing above their MVCs or have been following above their MVC. So that continues to be a changing dynamic as you would expect in this environment. But we're continuing to monitor what producers' volume expectations will be in the near-term and longer term.

Sunil Sibal, Analyst

Got it. And then one last one for me. Thanks for laying out your leverage expectations. I was just curious when you think about your different competing goals, especially if the recovery is slower than anticipated, how would you put distributions versus leverage reduction goals in terms of order of priority?

Michael Ure, CEO

Our priority is leverage reduction full stop. So if and to the extent we don't see facts that comport with what we've put together in terms of our own expectations then we'll need to revisit distributions at that point in time. Now we're certainly not there. And I can tell you that a lot of analysis went into the financial information that we used to support the distribution cut that we did undertake. But, that doesn't mean that we can't be nimble if and to the extent we see the backdrop warrant us to take further action.

Sunil Sibal, Analyst

Okay. Got it. I’ll leave it there. Thanks much for the color.

Operator, Operator

Our next question comes from Chris Tillett with Barclays.

Chris Tillett, Analyst

Hi, guys. Good afternoon. I guess first for me is on the MVC and cost of service contracts, are there any noteworthy expirations on those contracts in the next few years or so?

Michael Ure, CEO

No. Those are all longer-term contracts that are averaging eight to 10 years and remaining tenor, so no near-term expirations for those.

Chris Tillett, Analyst

Thank you. To follow up on some previous questions, can you specify what percentage of earnings currently comes from MVC and cost of service contracts in terms of EBITDA or operating income?

Michael Ure, CEO

No, we don't have that available. No.

Chris Tillett, Analyst

Okay. Okay. Well, I guess maybe sort of another way to think about it would be. Are the margins that are charged under those contracts either on the gas or the liquids side materially different than the margins that are seen on the volumetric contracts?

Michael Ure, CEO

I would say that we don’t discuss specifics regarding individual contracts. Therefore, I can't provide any insight on that particular question.

Operator, Operator

Our next question today is a follow-up from Shneur Gershuni with UBS.

Shneur Gershuni, Analyst

Sorry guys to come back in. I remember when this call used to be like 50 minutes; it’s turning longer than that. But I think in your response to Spiro's question you talked about, the decline rates would be bigger upfront into, let's say, Q2 and Q3 and then it would arrest. When you say arrest, are you saying it's a zero decline rate, or are you saying it's just falling from like a 20% decline rate to let's say an 8% or 10% decline rate? Just trying to understand what you meant by that comment.

Craig Collins, COO

Yeah. So, what I meant by that, again we were talking about cash flows there. And again, the dynamic that I was trying to highlight is that we do have dynamics that have been built into the model, based on feedback we received from all of our customers. It relates to curtailments that would be taking place for the most effect into Q2 and Q3. And so, we would expect a step down in EBITDA Q2 relative to Q1, potentially another step down into Q3. But the Q4 would potentially arrest that decline in part because we're not currently forecasting the curtailments to continue into that period.

Shneur Gershuni, Analyst

Okay. Does that consider Oxy's comments about 9% or 10% of their wells being shut in? It seemed to be consistent across the Permian, DJ, and international areas, and some of those wells might not come back. Is that kind of assumption included?

Craig Collins, COO

Yeah. What's baked into the guidance is direct information that we've received from all of our customers, including Oxy.

Shneur Gershuni, Analyst

Got it. Okay. And one final question just on the balance sheet. You did some debt buybacks this quarter. Is that a strategy you expect to continue pursuing?

Mike Pearl, CFO

If we see the price arbitrage that makes sense to us, the answer is absolutely. I think we're on record in several instances of commenting that we have no near-term need to access the capital markets, which basically means, in terms of 2021 and 2022 maturities, we plan to pay those off. So if we see an opportunity here in the near-term to take those out for below par, we think it makes all the sense in the world to take it out early if we have the liquidity to do so rather than paying, full boat so to speak at maturity.

Craig Collins, COO

And I want to highlight, Shneur, as it relates to that, that the focus is on near-term maturity, that if you're repaying those below par, that it's actually liquidity enhancing overall.

Shneur Gershuni, Analyst

No. I am completely agreed with that. I just wanted to clarify the strategy. Perfect. Thank you very much.

Operator, Operator

Our next question is a follow-up from Jeremy Tonet with JPMorgan. Please go ahead.

Jeremy Tonet, Analyst

Hi. Thanks. Just a couple of cleanups here; the OpEx, I think came in a little light for the quarter maybe versus expectations. And just wondering is this rateable, or is there some seasonal element here to lower O&M that we should be thinking about? What is the like kind of the cost savings that you guys were looking to achieve, and that's kind of baked into this level?

Mike Pearl, CFO

Yeah, Jeremy, we've identified a number of places where we can save costs for this year. And I would say that what you see in the first quarter OpEx is not particularly reflective of all those cost savings measures that we've identified. So we would expect to be able to save even more from the OpEx relative to the first quarter OpEx numbers that we've reported.

Jeremy Tonet, Analyst

Got it. That's helpful. And then just wanted to think about the family relationship with Oxy here, obviously Oxy is under a bit more stress than they want to be. Is there room for kind of any level of deals with Oxy that could be win-wins on both sides, just seeing if there's anything left on that front?

Mike Pearl, CFO

We're always willing to do win-win transactions with any of our customers.

Craig Collins, COO

And I would just highlight that the interaction, the relationship overall with Oxy is incredibly positive, very supportive across the board. So clearly if there are win-win transactions that work for both of us, that we would absolutely engage in those interactions and would expect that we would have the same type of fulsome engagement that we received from Oxy throughout. And expect to have that continue.

Jeremy Tonet, Analyst

That's helpful. That’s it for me. Thanks.

Operator, Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Michael Ure, CEO for any final remarks.

Michael Ure, CEO

Thank you everyone for joining the call. I wanted to again reiterate just how excited we were for the incredible results that the team has been able to achieve. We have absolutely done a wonderful job in being able to adapt to this environment. So thank all of our team members for being able to do that. We wish everyone to continue to stay safe and expect better and brighter things into the future. Thank you very much for joining the call.

Operator, Operator

Thank you. This concludes today's conference call. You may now disconnect your lines. Have a wonderful day.