Western Midstream Renegotiates Gas Contracts with Occidental Petroleum

Western Midstream (WES) has renegotiated natural-gas gathering and processing contracts in the Delaware Basin with a subsidiary of Occidental Petroleum (OXY), replacing the legacy cost-of-service structure of the gathering contract with a simplified, fixed-fee structure, which will continue to be supported by an acreage dedication. Additionally, WES entered into new agreements with ConocoPhillips (COP) to deliver natural-gas volumes to WES under a new dedication arrangement for existing volumes on WES's system. The ConocoPhillips agreement together with the Occidental amendments reset Delaware Basin natural-gas fees, in exchange for WES common units from Occidental. Following this amendment, approximately 9% of WES's total revenue will remain subject to cost-of-service rates, with approximately 1% of total revenue subject to cost-of-service rates expiring in the late 2020s. The remaining cost-of-service rate provisions extend into the mid-to-late 2030s and include provisions to convert to fixed-fee structures at that time. All significant fixed-fee contracts with Occidental, including the contracts being amended, are effective through the mid-to-late 2030s. In consideration for these transactions, Occidental will transfer to WES 15.3 million WES common units currently owned by Occidental, representing approximately $610M of limited partnership interests. As a result of the redemption and cancellation of common units, Occidental's ownership of WES will decrease from approximately 42% to approximately 40%. The value of the common units transferred will be added to the existing contract liability associated with the Occidental Delaware Basin natural-gas gathering agreement of approximately $560M. The aggregate contract liability balance will be recognized to revenue, averaging approximately $165M a year through 2032, the original term of the agreement. The conversion to a fixed-fee structure is not expected to reduce Adjusted EBITDA through 2027; after that time and until 2032, the conversion will have a minimal impact to Adjusted EBITDA. WES still expects to maintain net leverage at or near 3.0x Adjusted EBITDA in 2026. The new contract terms with Occidental will be effective as of January 1, 2026, the new contract terms with ConocoPhillips will be effective as of February 1, 2026, and the common units will be redeemed on February 3, 2026.