Western Midstream (WES) Q3 2026 Earnings Call Transcript

The asset is performing very well with customers increasing activity above our underwriting case, which was put together early this year. Since early 2025, we have been keenly focused on reducing both operational and administrative costs to improve our competitiveness in the midstream marketplace. We have now achieved just over $125 million of permanent O&M and G&A cost savings from the legacy business when excluding Aris, Brazos and utility costs, which are mostly reimbursable. These cost reductions, when combined with our efforts to also improve capital efficiency have made WES a more nimble midstream enterprise and have increased our partnership's ability to better compete for new business. We have also achieved tremendous success on the commercial front.

On our second quarter earnings call, we announced 2 new gathering and processing agreements with some of the most active producers in the Powder River Basin, adding approximately 270,000 dedicated acres to our asset base, backed by substantial minimum volume commitments. These agreements are expected to drive year-over-year throughput growth in the Powder River Basin in 2027 and are just a sample of the acceleration of our commercial team's success across all our basins.

When you take these accomplishments and pair them with the strong commodity price backdrop we have experienced year-to-date, we were able to increase our 2026 financial guidance ranges by 10%, 10% and 20% at the midpoint for adjusted EBITDA, distributable cash flow and free cash flow, respectively. The bottom line is that our teams from the field to the front office have executed extremely well, guided by our mission and core values and following our refreshed growth-oriented strategy, which we rolled out only 18 short months ago. Over this time, we have demonstrated that our multiple ways to win strategy delivers industry-leading total returns.

We have consummated strategic accretive M&A, achieved organic throughput growth, especially for natural gas and produced water. We expect these trends to continue as both gas-to-oil and water-to-oil ratios continue to increase and move in the midstream providers' favor. As we look to the future, the North Loving II natural gas processing train, the Pathfinder produced water pipeline and the Solitude pipeline system all provide avenues for growth in 2027 and beyond. We also recently placed orders for long lead time items for our next natural gas processing plant that we plan to sanction sometime in early 2027.

Additionally, we have other catalysts for future growth from beneficial reuse as we make progress towards our first commercial plant and from longer-term opportunities such as behind-the-meter power generation and CO2 enhanced oil recovery opportunities for shale. Finally, by pairing our approximate 8% annual cash yield with our long-term adjusted EBITDA growth target of mid- to low single-digits percentage growth, WES offers a potential 12% to 14% annual total equity return, which is a very compelling investment opportunity, especially when you compare those potential investment returns to the expected total returns of our midstream peers as well as the S&P 500. Now turning to our third quarter results.

Yesterday, we reported third quarter adjusted EBITDA of $708 million, a 12% increase compared to the prior year period, along with record produced water and natural gas throughput partnership-wide and in the Delaware Basin. Through the first 9 months of the year, our business has outperformed on nearly every front, and we now expect full year 2026 adjusted EBITDA to exceed the midpoint of our recently revised guidance range that we announced with second quarter earnings. Third quarter throughput growth was led by our Delaware Basin natural gas business, where throughput increased 20% sequentially. Roughly 1/3 of that growth came from our legacy Delaware Basin assets and roughly 2/3 from a full quarter contribution from Brazos.

As noted in yesterday's release, adjusted EBITDA declined modestly on a sequential quarter basis, primarily due to contract mix and pricing dynamics in West Texas, decreased throughput from the DJ Basin, lower excess natural gas liquids and skim oil volumes in conjunction with lower NGL and skim oil prices and seasonally higher operation and maintenance expense that is typical of the third quarter, all of which was partially offset by a full quarter of contribution from the Brazos assets. With that said, none of these third quarter items change our view of the year.

With a greater number of wells expected to come online in the fourth quarter relative to the third quarter, we expect strong fourth quarter results and a strong finish to what has been an outstanding year for WES. The Brazos acquisition is progressing as planned, and we expect the legacy Brazos system to be fully tied into the WES system by mid-December. Once connected, we will direct additional volumes to the Comanche natural gas processing plant, which has more than 100 million cubic feet per day of available capacity, reducing offloads and creating additional value for WES unitholders.

In August, we announced our participation in the Solitude Pipeline System, a joint venture operated by WhiteWater that will construct 2 48-inch natural gas pipelines from the Permian Basin to Katy, Texas. We hold a 7.5% equity interest in the joint venture and have secured firm transportation capacity on the system, which is expected to provide initial capacity of approximately 2.25 billion cubic feet per day in late 2029 and an additional 2.25 billion cubic feet per day by the end of 2030. Solitude will provide incremental residue takeaway, enhanced flow assurance and improve netbacks for many of our Delaware Basin customers while supporting continued Permian Basin natural gas growth and expanding Gulf Coast demand for LNG exports.

Looking ahead to the fourth quarter, we expect strong results. Customer activity levels in the Delaware and Powder River Basin should drive throughput growth as we exit the year. We expect this volume growth to deliver higher fourth quarter adjusted EBITDA, particularly if the current commodity price environment holds and to position WES for additional throughput growth across all 3 product lines in 2027. Turning to guidance. In conjunction with our second quarter earnings release, we raised the midpoint of our full year 2026 adjusted EBITDA, distributable cash flow and free cash flow guidance ranges by 10%, 10% and 20%, respectively.

We now expect to be above the midpoint of our full year 2026 adjusted EBITDA range of $2.75 billion to $2.95 billion, driven by a greater number of wells expected to come online in the fourth quarter and increased commodity pricing. This outlook represents an increase of more than $250 million relative to the $2.6 billion midpoint of the original guidance range we announced in February or more than $150 million, excluding the Brazos acquisition. That is a meaningful step-up within a single year and it reflects the quality of our core operating basins, contracts and the execution of our teams.

On capital, we now expect to be slightly above the high end of our full year 2026 capital expenditure guidance range of $850 million to $1 billion, reflecting our investment in Solitude and accelerating producer activity, both of which are investments in future growth. Looking to 2027, we are still working through the budgeting process with our producing customers. However, given the current elevated commodity price environment, increasing customer activity levels in the Delaware and Powder River Basins and a portfolio of sizable organic growth projects, including Solitude and the recent Powder River Basin acreage dedications, we now anticipate 2027 capital expenditure to be relatively in line with 2026.

With incremental customer activity, a full year of contribution from Brazos, the start-up of the Pathfinder pipeline, North Loving II coming online and our new gathering and processing agreements in the Powder River, we are positioned for throughput growth across all 3 product lines again next year. Relative to our expectations entering the year, it is clear that 2027 will be another growth year for WES. Kristen will provide additional detail on our 2027 outlook shortly. With that, I will turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our third quarter operational performance. Danny?

Daniel Holderman:Thank you, Oscar, and good morning, everyone. Third quarter natural gas throughput increased 8% sequentially to a partnership-wide record of 5.9 billion cubic feet per day, driven by growth from our legacy Delaware Basin assets and a full quarter of contribution from the Brazos acquisition. Together, these resulted in another quarter of record natural gas throughput in the Delaware Basin, up 20% sequentially. Additionally, our crude oil and NGLs throughput increased slightly and produced water throughput increased approximately 2% on a sequential quarter basis to another Delaware Basin record.

Third quarter per Mcf adjusted gross margin for natural gas assets decreased $0.10 compared to the prior quarter, primarily due to contract mix and product pricing dynamics at our West Texas complex, lower excess natural gas liquids volumes in conjunction with lower crude oil and NGLs pricing and lower throughput in the DJ Basin. We expect fourth quarter per Mcf adjusted gross margin to be flat relative to the third quarter due to continued contract mix changes, offset by higher commodity price assumptions. But we continue to expect our full year 2026 adjusted gross margin to average approximately $1.30 per Mcf.

As we look into 2027, we expect our per Mcf adjusted gross margin to be slightly lower and most likely average between $1.25 and $1.30 per Mcf due to shifting contract mix. Third quarter per barrel adjusted gross margin for crude oil and NGLs assets decreased $0.28 compared to the prior quarter, primarily driven by NGL pipeline imbalance activity that we expect to normalize in the fourth quarter. We expect fourth quarter per barrel adjusted gross margin to be relatively the same as first quarter 2026, and we now expect our full year 2026 adjusted gross margin to range between $3.05 and $3.10 per barrel.

As we look into 2027, we expect our per barrel adjusted gross margin to be slightly lower and most likely average between $3 and $3.05 per barrel, again, due to shifting contract mix. Third quarter per barrel adjusted gross margin for produced water assets decreased $0.07 compared to the prior quarter, primarily driven by lower skim oil recoveries and lower crude oil pricing. We expect fourth quarter per barrel adjusted gross margin to be in line relative to the third quarter, and we continue to expect our full year 2026 adjusted gross margin to average approximately $0.91 per barrel.

As we look into 2027, we expect our per barrel adjusted gross margin to be slightly higher and most likely average between $0.95 and $1 per barrel, driven by the start-up of the Pathfinder produced water pipeline. For the remainder of the year, we continue to expect portfolio-wide average year-over-year throughput to increase by mid-single digits for natural gas and by 85% to 90% for Produced Water, driven by the Aris acquisition and strong performance from our legacy water business. Additionally, we now expect crude oil and NGL throughput to increase by low single digits, reflecting outperformance through the first 9 months of the year.

In the Delaware Basin, we now expect average year-over-year throughput growth in the mid-teens for natural gas and in the mid-single digits for crude oil and NGLs, driven by the Brazos acquisition and increased customer activity. In the DJ Basin, despite the expected quarter-over-quarter declines in both natural gas and crude oil and NGLs, throughput has outperformed year-to-date, driven by strong well performance and higher onloads from other midstream companies. This outperformance has improved our full year outlook for both products, and we now expect a low single-digit increase for natural gas and a mid-single-digit decline for crude oil and NGLs on an average year-over-year basis.

In the Powder River Basin, we continue to expect natural gas throughput to decline by mid- to high single digits on an average year-over-year basis, with throughput increasing as we exit 2026 and again in 2027 as customer activity ramps associated with the new acreage dedications we announced last quarter. Finally, we continue to expect mid-single-digit percentage throughput growth in 2026 from our other natural gas assets, notwithstanding the agreement we signed subsequent to quarter end to sell our remaining assets in Southwest Wyoming.

The transaction is expected to close by the end of the fourth quarter and will remove approximately 215 million cubic feet per day of annual natural gas throughput, most likely beginning in the first quarter of 2027. With that, I will turn the call over to Kristen to discuss our financial performance.

Kristen Shults:Thank you, Danny, and good morning, everyone. During the third quarter, we generated net income attributable to limited partners of $325 million, adjusted EBITDA of $708 million and distributable cash flow of $512 million. Relative to the second quarter of 2026, adjusted gross margin decreased by $35 million, driven primarily by contract mix and commodity pricing dynamics at our West Texas complex, lower excess natural gas liquids volumes in conjunction with lower crude oil and NGL pricing and decreased throughput in the DJ Basin, all of which was partially offset by a full quarter contribution from the Brazos assets.

Operation and maintenance expense increased approximately 2% quarter-over-quarter, primarily driven by a full quarter of the Brazos acquisition and increased personnel costs associated with field level personnel, all of which was partially offset by lower land fees associated with our produced water business. Inclusive of the legacy Aris and Brazos assets, we continue to expect full year 2026 operation and maintenance expense to increase approximately 25% year-over-year, which is still a meaningful reduction on a combined company basis as we execute on synergy capture and operational cost reduction efforts. Pro forma for the Brazos acquisition, we still estimate that approximately 60% of our portfolio-wide utility costs are reimbursed by our customers.

On a reported basis, general and administrative expense increased 2% sequentially, primarily due to higher incentive compensation expense, reflecting year-to-date adjusted EBITDA outperformance partially offset by lower Brazos transaction costs relative to the second quarter. Excluding acquisition-related costs and equity-based compensation expense, we now expect 2026 cash G&A expense to increase at a low to mid-teens percentage rate compared to 2025. This outlook fully incorporates higher year-to-date incentive compensation expense, a full year of the retained function from Aris and the integration of the Brazos assets, net of cost synergies.

As Danny mentioned, subsequent to quarter end, we signed an agreement to sell our remaining assets in Southwest Wyoming for approximately $75 million with closing expected by the end of the fourth quarter, subject to customary regulatory approvals. Upon close, we expect to recognize a noncash gain in excess of $100 million from the sale. However, the divestiture will have a minimal impact on adjusted EBITDA post close as these were high-cost noncore assets that did not compete for capital within our portfolio. Separately, in the fourth quarter, we acquired a small privately held Delaware Basin produced water gathering and disposal company for approximately $98 million.

This system was already interconnected with ours at 2 locations and will create a fully continuous network in Eddy County while providing additional disposal capacity to support growing customer demand. Turning to cash flow. Third quarter cash flow from operating activities totaled $568 million, an increase of $33 million over the second quarter of 2026. Free cash flow totaled $244 million and free cash flow after the second quarter 2026 distribution paid on August 14 was a use of cash of approximately $149 million. Turning to the balance sheet. We ended the quarter with approximately $1.8 billion of total liquidity and a trailing 12-month net leverage ratio pro forma for a full year Brazos contribution of approximately 3.2x.

On October 19, we declared a quarterly distribution of $0.93 per unit, unchanged from the prior quarter, payable on November 13 to unitholders of record as of November 2. Turning to guidance. And as Oscar mentioned, we now expect to exceed the midpoint of our full year 2026 adjusted EBITDA guidance range of $2.75 billion to $2.95 billion, a range we already raised in conjunction with our second quarter earnings release. This outlook reflects the contribution from the Brazos acquisition, the strong commodity price environment, year-to-date outperformance in the DJ Basin and increased customer activity levels throughout the second half of the year in the Delaware and PRB.

Following a softer third quarter, commodity prices have recently strengthened and our revised outlook assumes an average oil price of approximately $85 per barrel for the second half of the year. On capital, we now expect to be slightly above the high end of our 2026 capital expenditure guidance range of $850 million to $1 billion, primarily driven by increased customer activity and associated expansion opportunities in the Delaware and Powder River Basins and together with our investment in the Solitude Pipeline System.

More than half of our 2026 capital program remains directed toward the construction of the Pathfinder Produced Water Pipeline and the North Loving II natural gas processing train, which we now expect to commence startup late in the fourth quarter of 2026 and late in the first quarter of 2027, respectively. As Oscar mentioned, we currently expect 2027 capital expenditures to be in line with 2026, with approximately 80% directed towards the Delaware Basin, our largest growth driver, including our investment in Solitude and completion of North Loving II.

The vast majority of the remaining capital will be directed towards the Powder River Basin to support the 2 new gathering and processing agreements with significant acreage dedications and minimum volume commitments that we announced last quarter. Finally, our guidance ranges for distributable cash flow of $2.05 billion to $2.25 billion and free cash flow of $1.1 billion to $1.3 billion, both remain unchanged. With the third quarter distribution, we will have achieved our distribution guidance of at least $3.70 per unit paid in calendar year 2026. Our annualized run rate of $3.72 reflects the increased distribution rate of $0.93 per unit that commenced with the first quarter 2026 distribution.

With that, I will now turn the call over to Oscar for closing comments.

Oscar Brown:Thanks, Kristen. Before we open the call up for questions, I'll leave you with a few closing thoughts. Continued producer investment in the country's most active basins has us on track for just over 15% adjusted EBITDA growth in 2026 with Brazos, Pathfinder, North Loving II and recent commercial successes supporting further growth in 2027. Natural gas and produced water now drive our profitability and position us for rising gas-to-oil and water-to-oil ratios and emerging power and data center demand, while our investment-grade balance sheet funds growth, capital returns and per unit accretive acquisitions like Aris, Brazos and Meritage.

Together, that delivers one of the most compelling total return profiles in midstream, a 12% to 14% potential annual equity return derived from a 7% to 9% cash yield and a 4% to 5% long-term growth rate with opportunities for upside where we have taken proactive steps to capture the benefits of environments like the current one. I also want to thank our entire Western Midstream workforce for their continued hard work, engagement and dedication to our partnership. We lead with our core values of partnership, customer focus, resourcefulness and performance to deliver on our mission of improving lives through safe, sustainable and efficient energy delivery. With that, we'll open the call up for questions.

Operator: [Operator Instructions] Your first question comes from Keith Stanley with Wolfe Research.

Keith Stanley:I wanted to start on Solitude. Can you talk a little more to your strategic rationale for investing in gas pipelines? And then any color you can give on how contracted the pipeline is on the initial 4.5 Bcf a day?

Oscar Brown:Yes. Thanks, Keith. It's Oscar. Our strategic rationale for Solitude like everything we do is flow assurance and then getting really the best opportunity for pricing for our customers. So this just gives us another option. We had customers with capacity who didn't have exposure to the Gulf Coast. And we can certainly stand in and manage a portfolio of customers for a long-term commitment on a pipeline. The ownership piece is important because if you can combine the commitment and that customer service with ownership, you just get a really great return on the project. WhiteWater is the operator. I don't believe they've released any information on the level of commitments. So I really can't comment there.

Keith Stanley:Okay. Second one, you referenced in the remarks some contract mix changes in gas and oil in 2027 and said margins would be down a little bit year-over-year. Can you talk a little more to what's driving that overall in those businesses?

Oscar Brown:Yes. I think that relates to different customer activity. Obviously, we have a range of portfolio of contracts at different pricing and different terms. And so depending on the activity of different customers, that mix changes. So that's a chunk of it. I don't know, Kristen, anything else?

Kristen Shults:No, I think that's totally fair. We now move 5.5 Bcf a day of gas, and so that's going into that equation on gross margin per unit on the gas side. I think on the oil side, the commentary is more around fourth quarter will be closer to what you saw in Q1. Q2 was a little higher from a gross margin per barrel standpoint on oil because of some imbalances and then Q3 was a little bit lower. So there really was just noise between Q2 and Q3 from a gross margin per unit. But as mentioning like Q4 and then going into 2027, closer to what you saw in Q1 of 2026.

Operator:Your next question comes from Vrathan Reddy with JPMorgan.

Vrathan Reddy:I wanted to pick up on the commentary around Southwest Wyoming asset sale and then the Delaware acquisition. As you think about the portfolio today, how do you view both sides of that, the opportunities for additional portfolio pruning or M&A, whether that would be small scale or large scale?

Oscar Brown:Yes. I mean the coming in and going out of both these transactions was under $100 million each. So that's pretty low, obviously. And we, I think, got a great multiple on the sell side and a different multiple on the buy side. So it's all good. So accretive, but very small. But really, that's just normal sort of portfolio review on the sell side there. That asset was very small, a very small number of folks sort of bit stranded relative to our system and just we didn't really have a way to grow it very well. And so it will do great. The people will do great there in somebody else's hands.

And then similar on the buy side, again, very small, but a nice puzzle piece addition to our water business. Again, it was already connected. So it was a pretty straightforward sort of transaction. So put that in the category of just expanding the system and really simple. It could have been a commercial deal for that matter. So as it relates to the broader portfolio, I wouldn't read too much into it. I think all of our major assets contribute in different ways with the Permian being our highest growth; the Powder, also long-term growth play; the DJ, very high cash margins and a great cash producer. So everything contributes well, and we're pretty happy where we are.

So I wouldn't overdo it. It's just some nice cleanup and opportunity that we took advantage of.

Vrathan Reddy:That's clear. And then the remarks kind of highlighted an acceleration in some of the producer growth. Curious if the views around the pace of processing additions has changed from maybe points in the past and how you frame that today?

Oscar Brown:Yes. No, I think our customer mix, of course, has been changing with Aris and Brazos. So we've added a lot of kind of midsized and smaller and private producers to the mix, and they've tended to be in this environment a little more aggressive in ramping up and leaning a bit forward a bit more relative to some of the very large public or integrated producers. So I think that's some of the dynamic we're seeing. Right now, I think people -- sort of the general press has been there's restraint.

I think that does apply to the very large public companies where some of the smaller ones that are more specifically Permian focused, again, I think we're just seeing a real acceleration of activity, particularly in our Brazos footprint, we've seen -- that was one where I don't think we build that as a high-growth asset. It was just sort of a very nice, good asset with sort of modest growth, but it looks like in this environment, it's going to be a pretty strong grower. So that's a pleasant surprise relative to our underwriting case and sort of what we were referring to.

Operator:Your next question comes from Spiro Dounis with Citi.

Spiro Dounis:I want to start with Pathfinder. Great to see that coming online soon. I was curious if you could provide more color on how you see those volumes ramping once it does come online. And then when it comes to achieving that higher sort of targeted return on that asset, how are you thinking about the pathway to layer in more volumes there?

Oscar Brown:Yes. Thanks for that, Spiro. We're really excited about this asset coming online. I mean I don't think in terms of our sort of shift to increasing and frankly, generating an integrated water business over the last couple of years. I don't think we could have been more pleased and sort of the turn of events, both in public policy, sort of the environment and all the opportunities have really played to the water handlers sort of benefit. So we are really well positioned with sort of the best and largest footprint in the Delaware Basin around that. We touched the water molecule sort of 6 times, with 6 opportunities to earn sort of a return there.

With Pathfinder, it's a critical piece of infrastructure down, really right down the center of the combined New Mexico and Texas system. So our original vision was more like a very long-haul, big gas pipeline where we have 2 or 3 or 4 large contracts on the line. We have obviously the large MVC-related commitment from Oxy that's in that traditional format. But what we think today is what it looks like is it's allowing us to bring additional business and more business than we could have otherwise all across our system where we would have been potentially constrained by local disposal issues.

And so we're really -- we will be able to use this pipe to provide like full solutions across the chain. And really also, we have a handful of customers now and we're growing every day that want to know specifically where the barrels are going, where they're being disposed and ask us to put them in separate places. And we're happy to do that, and we'll use Pathfinder to do it. So I think the key thing to watch on Pathfinder is just the overall volumes on the pipe as it relates to sort of the return on the asset as opposed to watching for chunky incremental contracts.

We do charge piece by piece for all our 6 services in the water business. So that volume will be a great indicator on how that's going. So right now, with the anchor commitment, it's around a 10% return asset. As you know, we've supersized it. We have 4 more times the capacity of that on it. And so as you see that volume creep up over the next year or 2, we'll creep our way towards hopefully a 20% plus return on that asset. So simplest way from here on out is sort of watching the volumes on it.

Spiro Dounis:Got it. That's great color. Maybe sticking with water, but pivoting a little bit to beneficial reuse. Really just looking for an update on that front. How much capital is being spent there in '27, if any? And just how to think about when that business could really start to contribute to EBITDA? I suspect probably still a few years out, but just curious what's new there.

Kristen Shults:Yes, I think you're right, Spiro. I think you're still a little bit out from a contribution to EBITDA perspective. Team has been working really hard talking to a few producers, in particular, about a first commercial plant, hoping to sanction that, I'd say, within the next 6 months, maybe a year, but 6 months is the goal there. From a capital perspective, we haven't included anything in our 2027 capital budget related to that first commercial plant, but it will be smaller. So it won't be something that's a meaningful, large chunky capital project. It will be a smaller plant as we kind of build up scale-wise into something much larger one day.

Operator:Your next question comes from Zach Van Everen with TPH & Company.

Zackery Van Everen:Maybe on the 2027 capital front, I understand it's WhiteWater's project, but just trying to parse out the spend with most of it in the Delaware and North Loving wrapping up, we're getting to a $300 million to $400 million contribution on Solitude. Is that the right way to think about it? Or am I missing some additional CapEx on the Delaware G&P side?

Kristen Shults:No, you're missing some additional CapEx that we would be spending in the Delaware. So seeing the Delaware business growing in 2027. And yes, so we'll have to spend capital on water side, on the oil and on the gas side there. So there's incremental growth CapEx outside of Solitude when we're talking about spending 80% of the capital budget in the Delaware Basin next year.

Zackery Van Everen:Okay. Got it. That makes sense. And then maybe moving to the Powder. You mentioned MVCs on those 2 new agreements. Do those ramp up over time or they come on once the contract starts?

Oscar Brown:Yes. No, you'll see a ramp both in capital and volumes during the course of next year. So it's a pretty -- actually a pretty even ramp. You'll see some good production come online early, but otherwise, a pretty steady ramp through the year.

Operator: [Operator Instructions] Our next question comes from Ned Baramov with Wells Fargo.

Ned Baramov:It's one on capital allocation. And given your elevated spending expected next year, could you maybe touch on any preliminary discussions you may have had on distribution growth?

Oscar Brown:Sorry, it was a little hard to hear you. Got it. On the distribution growth. No, it's too preliminary. Obviously, it's a decision for the Board, and it's typically -- we typically do that in sort of the February time frame. But no, we're -- again, the strategy and the mission has been to deliver the strong yield that we have, continue to build distribution coverage and then sort of grow the distribution a bit behind EBITDA growth while we're building up that coverage. I think we're at roughly 1.4 or something like that right now, which is pretty good, but I think there's some room there to continue to grow that.

We'll also, frankly, just keep an eye on the stock. Our yield today is something like 8.75%, which seems a little peppy given sort of the strong outlook in the business. So we'll watch that as well. But again, this is -- these kind of things are really typically dealt with once we get our producer forecast in and set the budget and then work with the Board to figure out kind of where we go from here.

Ned Baramov:Understood. And then with activity in the Delaware ramping up, it seems that you've already placed an order for some of the long lead time items in your next processing plant. Could you maybe provide a little bit more details on the capacity, the cost, the location of this next project?

Oscar Brown:Yes. Again, we look at these things on a very long-term basis. And so relative to our overall gas thesis, in the basin and the customers that we worked with for a long time and really thinking about how to continue to build our processing stack. So it did seem like the right time, particularly given all the activity to put in some long lead time items. So we're still working towards the potential FID and where it would go exactly and all that. But when we look at our stack long term, we feel pretty good about making that move. We typically or historically, we've built trains around the 300 million a day kind of size.

And so that's likely where we'll be heading with this one.

Operator:Your next question comes from Gabriel Moreen with Mizuho.

Gabriel Moreen:I just had 2 quick ones. One, can you just talk about hedging commodity sensitivity for next year given the rise in the forward curve, I guess, up until really recently? And then second would just be prospects for continuing to flatten the curve, I think, in terms of DJ declines in terms of what you're just seeing out there from producers of late?

Oscar Brown:Thanks, Gabe. Yes, on hedging, just remember, we don't have that much exposure, right? So we did adjust our oil price sensitivity to $50 million for every $10 of WTI change. It's still very nominal for natural gas. So to the extent we would look at hedging activity, it's really around some of our equity barrels and then skim oil, which is, again, new to us from about 1.5 years ago. So we look at that all the time. It's not been material. So it's sort of -- but something we would watch. I'm sorry, I forgot the second question.

Gabriel Moreen:Second question was just on DJ...

Oscar Brown:Yes, yes, on the DJ. So again, it's -- we have hedging programs. We look at that. But again, it's just hasn't been material. So on the DJ, yes, I mean, I think right now, we're expecting sort of the trend that started here probably around in July, which was a little later than we thought of sort of some volume declines coming in the DJ to continue. I would say, in terms of the political environment in Colorado, there's really no change [indiscernible] few places where there's nothing unexpected in Colorado. So kind of business as usual there, which is to mean a lot of regulatory, both at the local and state level sort of challenges.

But so far, we haven't seen anything from our customers that would say there's a shift from that sort of decline continuing. We do mitigate that the best we can. We've been -- had great success with processing unloads. So you might see volumes sort of hang in there, but the mix will sort of shift as that becomes more processing as opposed to gathering and processing very slowly over time. That's about it. Yes, I wish I could say there was something exciting that was going to pivot the DJ. We just haven't seen that yet.

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

Oscar Brown:Great. Thanks again. Thanks, everybody, for your interest and participation and to really all our stakeholders for the support of Western Midstream and our mission. I really do want to say we're grateful for our customers who entrust us with their energy flow assurance and for our employees and teammates whose engagement and daily demonstration of our core values allow us to safely deliver on our mission, which is so critical to America's quality of life. We look forward to seeing everybody in the investment community at upcoming conferences, hopefully, very soon. With that, we'll conclude the call.

Operator:This concludes today's call. Thank you for your participation. You may now disconnect, and have a wonderful rest of your day.

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Western Midstream (WES) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool