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Edited Transcript of WES earnings conference call or presentation 26-Jul-17 4:00pm GMT

Q2 2017 Western Gas Partners LP and Western Gas Equity Partners LP Earnings Call

The Woodlands Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Western Midstream Operating LP earnings conference call or presentation Wednesday, July 26, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benjamin M. Fink

Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC

* Craig W. Collins

Western Midstream Operating, LP - Former Senior VP & COO of Western Gas Holdings, LLC

* Jonathon E. VandenBrand

Western Midstream Partners, LP - Director of IR

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Conference Call Participants

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* Andrew Marc Weisel

Macquarie Research - Former Analyst

* Barrett Auten Blaschke

MUFG Securities Americas Inc., Research Division - Senior Analyst

* Christopher Paul Tillett

Barclays Bank PLC, Research Division - Research Analyst

* Elvira Scotto

RBC Capital Markets, LLC, Research Division - Director

* Gabriel Philip Moreen

BofA Merrill Lynch, Research Division - Former MD

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* John Brandon Blossman

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Former MD, Midstream Research

* Matthew Joseph Phillips

Guggenheim Securities, LLC, Research Division - Former Director & Senior Equity Research Analyst

* Sunil K. Sibal

Seaport Global Securities LLC, Research Division - MD

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Presentation

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Operator [1]

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Good morning, and welcome to the Western Gas Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Jon VandenBrand, Director of Investor Relations. Please go ahead.

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Jonathon E. VandenBrand, Western Midstream Partners, LP - Director of IR [2]

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Thank you. I'm glad you could join us today for Western Gas' Second Quarter 2017 Conference Call. I'd like to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. Please see the WES and WGP 10-Ks and other public filings for a description of the factors that could cause actual results to differ materially from what we discuss today. In addition, I encourage you to read our disclosure on forward-looking statements, as well as the non-GAAP reconciliations in last night's earnings release. And the slides that we will reference on this call. These materials are posted on the Western Gas website at www.westerngas.com.

With that, I'll turn the call over to our CEO, Ben Fink, and following his remarks, we'll open it up for Q&A with Ben and the rest of our executive team.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [3]

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Thank you, Jon. Good morning, everyone, and thank you for joining us today. As highlighted in our release last night, we're excited to announce the sanctioning of 2 new gas processing trains in the DJ Basin. The Latham I and II trains will add a total of 400 million cubic feet per day of cryogenic processing capacity, and I'll discuss this more later in the call.

During the second quarter, we continue our extensive infrastructure buildout in the Delaware Basin. All major capital projects including Ramsey VI and Mentone I and II remain on schedule. After closing our Delaware-for-Marcellus acid exchange, we successfully settled our DBJV deferred purchase price obligation for $37.3 million. As you may recall, the deferred purchase price obligation on our balance sheet represented the present value of the final payment we estimated that was due Anadarko in conjunction with the DBJV drop down in March of 2015. This highly accretive transaction further supports our goal of more fully integrating our Delaware Basin infrastructure. Also, DBM water services successfully commenced operations of 2 produced water gathering and disposal systems, and is in the process of ramping up.

We currently have a total of 3 disposal wells in service, and expect to have a fourth online later this year. We continue to be optimistic about the prospects of bringing third parties on to the produced water infrastructure, that both we and Anadarko are developing simultaneously. And I'm pleased to report that Anadarko has now secured its first third-party customer for water disposal services further validating our business plan.

Additionally, Western Gas recently negotiated an option to purchase up to a 30% ownership interest in a new residue gas pipeline project that will deliver gas from the Delaware Basin to the Waha area. This option was granted to us in conjunction with Anadarko's shipper commitment, and this pipeline will have connectivity with our Ramsey plant as well as our Mentone plant when it comes online next year.

This residue gas solution will provide our customers with attractive netbacks, as well as access to premium markets to the operators existing Waha infrastructure.

Other highlights for the quarter include the conversion of all our remaining preferred units into common units, and the divestment of the Helper and Clawson Systems. These systems were sold alongside Anadarko's divestment of associated upstream acreage, and represent less than 1/2 of 1% of our run rate adjusted EBITDA.

Turning to our second quarter results, we reported adjusted EBITDA of $274.8 million, and distributable cash flow of $247.2 million, which includes the receipt of a business interruption insurance payment of $24.1 million. We've received a total of $46.2 million of business interruption insurance proceeds, and the claim is now fully settled. Our healthy coverage ratio for the quarter of 1.19x includes the impact of the conversion of the remaining 50% of the preferred units into common units. While we expect this ratio to compress over the second half of the year, our longer-term target coverage ratio of 1.1x or higher remains unchanged.

Our natural gas throughput decreased quarter-over-quarter, as a result of the DBJV-for-Marcellus acid exchange that closed in March. After adjusting for this transaction, our natural gas throughput would have been approximately 2% higher quarter-over-quarter driven by growth at the DBM complex and Granger Straddle plant offset by declines at our DJ Basin complex.

However, the DJ Basin declines were primarily due to the vertical wells that Anadarko shut in during the quarter, and we expect DJ Basin volumes to resume growth next quarter. The growth in our crude NGL and produced water throughput was driven by the start-up of our DBM water services assets, as well as growth at the Texas Express Pipeline.

Our adjusted gross margin per Mcf for natural gas assets of $0.94 was $0.09 higher than the previous quarter, primarily driven by the impact of the DBJV-for-Marcellus asset exchange. Our adjusted gross margin per barrel for crude NGL and produced water assets of $2.15 was $0.17 higher than the first quarter of 2017, driven by increased distributions per barrel for Mont Belvieu and White Cliffs.

Now I'd like to share some additional details regarding the new processing facility, which will be part of our DJ Basin complex. The Latham I and Latham II cryogenic processing trains are scheduled to come online in the first and third quarters of 2019, respectively. These trains are underwritten by significant long-term volumetric commitments from Anadarko, in addition to a life of lease acreage dedication. Alongside these processing commitments, Anadarko also agreed to extend our DJ Basin gathering agreement by more than 7 years to 2027. In total, we expect to spend approximately $280 million on the project, and an estimated $50 million will be spent in 2017, as we order long lead items and begin preparing the facility site.

Moving to our 2017 outlook, we've narrowed our adjusted EBITDA range, while keeping the midpoint unchanged. All other guidance remains unchanged from what we provided last quarter. As a reminder, this outlook assumes no additional dropdowns and we remain confident that we can fully fund our capital program without issuing any additional equity.

In closing, I'd like to note that WES recently celebrated its ninth birthday, and in many ways our future has never been more promising. We have what we believe are the most significant gathering and processing footprints in 2 of the best basins in America. We have a portfolio capable of strong organic growth that is supplemented by high-quality, high-growth dropdown inventory. We continue to have what we believe is the most supportive MLP sponsor in the space. When all this is put together, it creates what I think makes WES special. A rare combination of large-scale, investment-grade credit metrics and sustainable growth. As always, we appreciate all of our unitholders and lenders continued trust and support, and we're excited to embark on our next growth phase together with you. With that operator, I'd like to open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jeremy Tonet of JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Ben, just want to follow up on Anadarko's call yesterday. There was a good amount of commentary talking about Delaware Basin buildout, on the midstream side and the importance of this buildout. I was just wondering if you could expand a bit more on what you think this means for WES?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [3]

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What I think it speaks to, Jeremy, is the high-growth nature of our dropdown inventory. And just to remind you, that dropdown inventory was growing at a very fast clip at much lower Anadarko CapEx levels, right? Last year CapEx was south of $200, here they're guiding it to $600, right? Off of our already high growth base. So what I think what that gives our investors confident of is that, that inventory whatever it is today is only growing in nature and is going to be more substantive relative to WES in the future. What that also tells you is that Anadarko and WES together are really loading a spring for future development, and it's really is replicating the same playbook that we used successfully in the DJ a few years back, right. You saw a couple of years of heavy infrastructure spend getting ready for an inflection point in volumes, you saw that in the DJ in the 2013, '14, and now we're getting ready for that in Delaware in '18 and beyond.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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Great. Then just wondering, it seems like the midstream spend is really kind of unabated even with commodity prices being a little bit volatile here. If you look forward, do you expect kind of 2018 midstream CapEx to be a similar number for the Anadarko family, APC and WES, versus 2017? Or how do you expect that to trend directionally at this point?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [5]

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Well, I won’t speak to Anadarko's CapEx, I would direct you to their IR department. What I could tell you especially with our announcement today is our plate is pretty full, it is a multi-year play, and as WES gets larger and can absorb more organic CapEx, Anadarko will have that flexibility to have WES do even more.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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That makes sense. And then just want to pivot towards the new residue pipeline, where you guys have the 30% interest to purchase there. I was just wondering, if there are any more details you could share at this point in time, with regards to when that could come into service? And what type of capital does it involve there? And would you be purchasing that at cost or any other details you might be able to share with us at this point?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [7]

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Sure. I'm sure you want to know who the operator is. And trust you understand that it's probably not appropriate for us to disclose the operator before the operator does. But what I can tell you is that our choice of that operator was our confidence that, that could come online by mid '18, the availability of additional residue takeaway is critical to the start-up of our Mentone plant, and so existing Waha infrastructure as well as existing right away was an important consideration. What -- the cost as you will, will be -- it will be the cost plus any capitalized interest, right. We'll have some period of time after the pipe comes into service to exercise the option. So obviously, we would need to reimburse the operator not only for their share of CapEx, but capitalized interest on that. Not unlike when we were looking at doing something ourselves. I anticipate the gross costs of building that line to be in the $200 million to $300 million range, so we would be 30% of that.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

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That's very helpful. And then just one last one, if I could. Congrats on the new DJ plant announcement there, quite an expansion of the system. I was just wondering, what type of visibility you have as far as how quickly those plants could ramp up. The fact that you're doing 2 in short order seems to indicate that will be kind of nice growth in the DJ in 2019, is what you have kind of line of sight to at this point?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [9]

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I think, the 2 -- the staggering of 2 quarters between the 2 trains gives you some idea of the path of the ramp of that first train. And what this shows is, is continued belief by Anadarko and WES in the DJ, and you referenced Anadarko's call earlier, you referenced Delaware comments, but I'd also point you to their DJ comments. They talked about DJ completions in the second half of this year being 50% higher than the first half. They talked about a 35% completion uplift that is not yet included in their type curves, and they talked about these vertical wells coming back online. So I think, we're quite bullish about future growth in the DJ, and obviously, our customer is too, since they were able to make these significant commitments to a new plant.

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Operator [10]

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The next question is from Brandon Blossman of Tudor, Pickering, Holt & Company.

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John Brandon Blossman, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Former MD, Midstream Research [11]

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Let's see, I guess kind of going to -- well, let's do this on the waterfront. Ben, I know it's a tiny part of the EBITDA this quarter, but relative to your expectations for this quarter and then looking out, what's the potential here for water to surprise to the upside? A bit of a leading question, but that is it.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [12]

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It's a fair question, Brandon, and I appreciate it. You have to remember that when you look at water, you really need to look at the Anadarko WES family. And when you look at that broader infrastructure build, only a small part of it is at WES, right? We’re talking about 2 distinct systems right now. I think the gross CapEx of that was in the $40 million range. So in terms of our expectation for the quarter, it started up, it met our expectations, it will ramp from where it is, but I don't expect it to be a material driver of 2017 EBITDA. To give you a little bit more color on that buildout, I'll hand it over to Craig Collins, our COO.

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Craig W. Collins, Western Midstream Operating, LP - Former Senior VP & COO of Western Gas Holdings, LLC [13]

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Thanks, Brandon. I would just add to Ben's comments. I mean, as everyone understands, this is a new business for us and we are growing this business from the ground up. And we're excited to be signing up third parties. We've recently seen Anadarko get a third-party commitment there and it's really a business that we are excited about, but it's also one that's going to be growing methodically over the next several months. And like Ben says, it's really split between Anadarko and WES at this point. The 2 systems that we've started up, we've got 3 wells that are currently online and with the fourth coming later this year. I think, again, the growth of volumes on those 4 wells is going to be tied directly to the volumes that Anadarko is going to be bringing online from those -- the wells upstream of these 2 facilities. And so we're excited about adding volumes to these facilities. They're projected to be full by the end of the year. And so we look forward to seeing those volumes roll through.

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John Brandon Blossman, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Former MD, Midstream Research [14]

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Perfect. And then pushing the envelope here a little bit, Ben. And perhaps related, perhaps not. A crystal ball 3 years from now, Western Gas is bigger than perhaps the consensus expectations are today. What drove that upside surprise if that is indeed the case?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [15]

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No, you're not pushing the envelope at all, Brandon. No, I think that primarily an under appreciation of both Delaware and DJ growth and how much, not only in terms of gathering volumes but needs for additional processing capacity. I mean, I think that the Delaware people forget, they see the growth that we have that's primarily third-party growth. But we forget that Anadarko is still in appraisal mode today and will continue to be in appraisal mode, and it's really not for a couple of more quarters that we get into pad drilling and multiple well pads which is that inflection point. And in the wait-and-see attitude that we have in the market today, I'm not sure people are fully understanding how much could actually materialize from that.

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Operator [16]

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The next question is from Matthew Phillips of Guggenheim Partners.

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Matthew Joseph Phillips, Guggenheim Securities, LLC, Research Division - Former Director & Senior Equity Research Analyst [17]

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Just follow-up on this -- the residue pipeline. The Anadarko identified or a lot of Waha takeaway. I mean, do you think there is -- in the CapEx you mentioned as kind of in scope with what you would expect for something like that. I mean, going down the line, do you expect to participate in a Waha takeaway solution as well? Or is this kind of one step at a time here?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [18]

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That's a -- that's a great question, Matthew. And I think the way to think about it is Anadarko and you've seen us over the past years kind of has a standard operating procedure in that, when it's asked to participate in an infrastructure project, not only does it want to get that rate as low as possible, but it asks for an option to participate. And either they build out that option and drop it to WES or in the case of this Waha line, you know they just give that option to WES. So as they commit to more infrastructure projects, I would expect those requests to continue. Now whether they are successful in generating those options or whether those options ultimately get exercised, that's just a matter of speculation. But I'm pretty comfortable that as more infrastructure commitments are asked for, there will be at least more requests for participation. And these have really worked out very well for us. If you look at the assets that we've been able to participate in, whether it's White Cliffs, Texas Express, Front Range, Mont Belvieu fractionators, these are some very high-quality projects that WES as a standalone entity never would have been able to participate in. Only a customer with the leverage of Anadarko would have been able to negotiate these options.

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Matthew Joseph Phillips, Guggenheim Securities, LLC, Research Division - Former Director & Senior Equity Research Analyst [19]

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Got it. That makes sense. And then on CapEx, Anadarko mentioned the small CapEx cut on midstream around $50 million-or-so for this year, not a huge amount, but I mean is that CapEx that will be deferred to '18 or is that CapEx that will -- that WES will be expected to pick up for this year?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [20]

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No, in a word, that's just slippage. That's just slippage from '17 to '18. You look at those maps, you can see them in our investor presentation, you can see them in Anadarko's operation report. We are building a very significant oil, gas and water footprint in the Delaware and that's still the plan. So it's really just a timing issue.

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Operator [21]

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The next question is from Elvira Scotto of RBC Capital.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [22]

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Couple of questions from me. Looking at the adjusted gross margin, both for natural gas and crude, but let's start with the natural gas, the $0.94 is that a good run rate to use going forward?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [23]

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Great question, Elvira. This is Ben. If you think about our portfolio statically, right? You have certain assets that are growing faster than others, right. And as will not surprise you, we expect most of our growth to come from the DJ and Delaware basins. Our gross margin for Mcf in those basins are above our portfolio average, right? So as you think, about changes in the throughput mix, right? It should tick up towards, right? Now there is an offset to that, is that we have a high margin asset at Springfield that's still in decline, right? And so that will temper that quite a bit, right? Now the hard thing to project is any type of dropdowns third-party acquisitions, because that usually would result in a step change, if you were to acquire something, right? But just in terms of the run rate, hopefully, that helps you give a sense of where we see this going.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [24]

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Yes. No, that's very helpful. And then similar question on the crude NGL and water side, the $2.15. Can you just provide a little more color there on what drove that significant upside over first quarter?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [25]

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Sure. What you need to remember, when you look at -- well, first of all, in terms of the volumes, about 2/3 of the volume increase was just the start-up of DBM water, right? So what that refers to is Brandon's earlier comment, that it's tiny at this point. In terms of margin, with the exception of DBM water which is tiny, most of these assets are equity investments, right? Which means, what we record is the cash that we receive from the operator, right? When you're recording cash, that operator's distribution policy affects what you book. Some months they'll hold back more cash maybe for maintenance or maybe because they had a change in policy, and sometimes they'll distribute more, right? So that by nature is going to bounce around. And this quarter, we had a couple of operators that for whatever reason distributed a little bit more cash per barrel than they did the previous quarter. And that's going to be very hard for all of us, me, you, everyone to predict because you're talking about operators' distribution policies.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [26]

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Got it. No, that's very helpful.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [27]

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The only other color I'll give you there is that, as DBM water services grows and becomes a more significant part of throughput rigs that is below the crude portfolio average. So that would cause it to trend down a little.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [28]

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Got it. Okay, great. And then just -- since it came up in the reply, what's the outlook here on third-party M&A? How do you see that market kind of evolving? Is WES still pretty active in kind of looking?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [29]

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I don't think there's anything that's traded that we haven't given a good hard look at. And to the extent we have the ability to grow our footprint and enhance our competitive position, we're going to look hard at that. Nothing has cleared at a price that we were really able to come close to, right? That's the definition of Permania. We'll continue to evaluate. Perhaps this phenomenon will shake out. But I'm not particularly sanguine of our ability to execute anything at these market clearing prices. But what I take comfort in is we made our big acquisition in 2014, right? And what we ask that everyone remember is just do any type of mark-to-market analysis on what that Nuevo acquisition is worth now, and I think you'll be very pleased with what we were able to get it for.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [30]

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Absolutely. And then just a last one. I think I know the answer to this, but just wanted to double check with you. The -- with Anadarko securing operator ship of -- in the agreement with Shell, does that change anything at all for WES?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [31]

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No. I think Anadarko had been guiding to the 70% operator -- sorry, 70% operatorship capture for some time and that was in our forecast and our forecast is unchanged.

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Operator [32]

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The next question is from Christopher Tillett of Barclays.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [33]

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I was wondering if you could help us understand, yesterday and through some of their presentations this year, Anadarko has talked about reaching 150,000 barrel a day, kind of exit rate target between Delaware and DJ basin by the end of this year. By my count, we're still a little bit of short of that. But, how do you guys think about kind of the mix shift in production growth between those 2 areas as we head into the back half of the year, particularly, considering what Anadarko said yesterday regarding increased completions in the DJ versus the significant activity in the Delaware?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [34]

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I'm not sure I fully understand your question. I would reference my earlier questions about it being a back half of '17 weighted year. We've already talked about the data behind that between the number of completions, the completion uplift. Remember in the Delaware we've recently added a couple of frac crews, which is going to result in increased completion activity in the second half of the year. I would just refer you to Anadarko for questions about Anadarko's exit rates. I can assure you that we believe in this back-end loaded ramp in the back half of 2017, and all of the evidence that we've seen and rig counts, frac crew additions, et cetera, support it.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [35]

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Okay. I guess, I was just asking if you guys are expecting sort of more heavily weighted towards Delaware versus the DJ. But it sounds like maybe I should refer to Anadarko on that one.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [36]

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Yes, I won't comment on any producer's exit rates. That would be a question for them.

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Operator [37]

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The next question is from Barrett Blaschke of MUFG Securities.

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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [38]

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Just kind of want to look at or want a better understanding of the way you see the gas gathering volumes sort of ramping back up post the asset swap and kind of timing, and growth rate to the extent that you can give us a little color on that. And is it going to be lumpy with the processing or sort of how do you view it?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [39]

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Well, what you had pre-swap was a Marcellus gathering asset that had run rate volumes, call it, in the 600 to 700 a day range, and then you had a DBJV asset much smaller, much higher margin in like the 100 to 150 range, right? So coming out Day 1 after that swap there is a throughput loss, but one is growing exponentially higher than the other one. We gave guidance at the beginning of this year at what we thought was the EBITDA impact of that swap. We also said that we expected to be accretive in 2018, and we still believe that. And that's just a function of the radically different growth rates of the 2 systems.

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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [40]

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Is it also a function of the rate as well, I mean, maybe lower volume but put at a higher rate as you were kind of talking about earlier, as you get into these high-growth assets in Delaware?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [41]

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Well, of course, and you saw it in that jump up in our gross margin for Mcf, right? We took out a very large, very low margin asset, and added a relatively small -- much higher margin asset. So we expect that to continue.

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Operator [42]

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The next question comes from Sunil Sibal of Seaport Global Securities.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [43]

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Most of my questions have been hit, but I was just kind of curious when you think about the gas takeaway solutions in the Delaware Basin, I think there have been a number of solutions being talked about and you touched upon one already. Just wondering, how do you see that kind of congestions as to say evolving over the next 2 to 4 quarters? I think some of the provider they have even talked about the ability to move some volumes up north. And I was wondering if you had any thoughts on that.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [44]

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Well, the first thing I'll say is what we're seeing in the Delaware today, really parallels what we've seen in other basins, which is a number of open seasons, a number of conceptual projects getting announced. And then when you try to convert those nonbinding commitments to binding commitments it always proves more difficult and you have a number of projects that consolidate or even don't get done. And I will not name names, but we see a couple of examples of that in the Permian basin in our opinion. We have been saying for quite some time that for we are kind of this northern loving in Reeves County getting the Waha is of the paramount importance, and then you have interconnection opportunities whether you go to Mexico or Aguadulce or north or what have you. So where -- we've completed what was most important to us, which is securing adequate takeaway for our needs. And that's why Anadarko's commitment is important, and if we like the returns of the project, we'll be a participant in it.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [45]

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Got it. So what you're saying is getting to Waha is of primary kind of idea that your focus on right now. And then, multiple locations from there onwards is basically what you would prefer, but not your concern right now, correct?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [46]

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The pinch point, the critical importance to us in the past few quarters was having adequate takeaway to Waha, so that Mentone can start up in the second half of '18, and we've now accomplished that.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [47]

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Got it. And then just one clarification from me. On the full year CapEx guidance of $900 million to $1 billion, does that include the $150 million-or-so that you paid for the asset swap earlier this year?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [48]

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No. No, that's organic CapEx only.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [49]

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Okay. So far in the first half you're running closer to $260 million-or-so, correct, on that organic CapEx?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [50]

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Yes, excellent observation. We did take a good hard look at the forecast, given that year-to-date has come in light. We've polled all of our engineers, asset by asset to make sure we still felt good about that number, and we still do. Let me pass it over to Craig to give you some more color on that.

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Craig W. Collins, Western Midstream Operating, LP - Former Senior VP & COO of Western Gas Holdings, LLC [51]

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Yes. Sunil, going back to early this year, we had a whole slate of projects lined up for not only 2017, but for 2018 or projects that would roll into 2018, and this is always projected to be a back-end loaded capital spend program and that's really what you're seeing. You're appropriately recognized that we still have quite a bit of capital to invest at the back half of this year in order to fall within the capital guidance that we've provided. So I just wanted to give you a sense for where those, the large draws on capital will occur from in the second half of the year. Starting out in Delaware, we've talked in the past about the Reeves County pipeline expansion projects that we have going on out there. We've spent the first half of the year acquiring right-of-way and getting prepared for that buildout, and construction will begin here in the first part of August and will continue through the balance of the year. So we're looking forward to getting pipe in the ground. We're adding compression out there to supplement the pipe and -- so that we have an integrated gathering system when it's all said and done. We're also starting construction at the Mentone gas plant facility and so we're going to see more and more capital get invested on that project between now and the end of the year. Flipping up to the DJ Basin. With Latham -- with the announcement of Latham, we're in a process now of beginning to order long lead equipment and so there is a significant amount of capital associated with those long lead orders as well as compression projects that we're working on right now. Because as we've talked about, we expect DJ volumes to continue to ramp as we exit 2017. And we'll need more compression to add to our systems. So that's really where the majority of the capital will be spent in the back half of this year.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [52]

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Okay. Got it. And then on DJ, I think you had Lancaster I and II on cryo. What is the total current cryo capacity available to WES?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [53]

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It's around 900 million a day.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [54]

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So that's all cryo?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [55]

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600 at Lancaster, call it 125 at Platte Valley, 105 at Fort Lupton. Call it the 800 to 900 range of cryo and then there's refridge in the field. And remember you have a swing plant that's still at Anadarko, which is another 200-a-day plant.

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Operator [56]

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The next question is from Gabe Moreen of Bank of America Merrill Lynch.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [57]

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Just had a quick question in terms of the new DJ plants, whether those were going to head down Front Range, basically? And just by definition, it's going to go to the WES interest NGL pipes coming out of the DJ?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [58]

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Hi Gabe, that's kind of a decision for the Anadarko marketing department, but I mean the whole reason that Front Range was originally built, and I believe they are at least talking about adding pumps to be able to handle more capacity, is because of this additional processing capacity coming out of the DJ. The expectation that Overland Pass, which historically was your only way out was going to get full either by existing commitments or tied in from Bakken liquids and that. The reason Front Range exists is for this capacity that's been added for the last few years.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [59]

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Got it. And then just -- I know you had called out, I think the Springfield assets last quarter as being a bit better than expectations. Just wondering how things are faring in the Eagle Ford even with all the focus here on the DJ and Delaware?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [60]

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No changes to our forecast. The -- technically, the assets are in decline in that throughput in the second quarter, we saw that in the first. But a much shallower decline than what we had originally anticipated as a result of a new operator being focused on that basin increasing the pace of completions.

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Operator [61]

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The next question is from Andrew Weisel of Macquarie Research.

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Andrew Marc Weisel, Macquarie Research - Former Analyst [62]

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I have 2 financial questions. First one, you've been clear and consistent that you don't expect any equity need in 2017. Can we get an early look into potential needs for 2018? And maybe some sensitivities around how that might look with or without ownership or CapEx related to takeaway pipelines?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [63]

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I appreciate the question, Andrew. I'm not sure how much we can say at this point. Without -- there are customers beginning their budgeting process for '18. I mean, there are many scenarios, but a lot of our heavy infrastructure spend this year is in the expectation of significant growth this year and next year. If that growth materializes, I could fully see a scenario where '18 looks a lot like '17 and to which we have enough organic growth, which in turn increases our debt capacity, which obviates our need for equity. So I don't -- that's one scenario. But until we know exactly what is the level of organic growth versus what our CapEx number will be, much of that number is going to be determined by well connection capital, which until the producers start budgeting, we won't know. It's hard to say. What I can say is if everything works out the way I think and hope they will, it's going to look a lot like '17.

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Andrew Marc Weisel, Macquarie Research - Former Analyst [64]

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Okay. Maybe another way to ask that is, the change in spending related to the new processing plants, that seems like it's relatively smaller in magnitude than the swing factor as you just said in terms of the unknown develop next year's customer budgets, is that a fair way to put it?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [65]

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That's a fair way to put it. And maybe giving a concept into how we did '17, right? When we got together, the Anadarko family needed to spend approximately $1.6 billion on infrastructure, right? Given the needs and what we wanted to accomplish. We were comfortable having WES do about $900 million to $1 billion of that. That was a number we felt that WES could comfortably fund, didn't impact our distribution growth coverage, it wouldn't impact our investment grade credit metrics, it was the right number. We will do the same thing next year. We will look out what is the need of the family, all right? And figure out what number we are comfortable putting at the WES level. If WES grows and its capacity is more, and remember some plants that we're spending capital on this year will be built. We should be comfortable putting as much potentially even more in WES next year.

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Andrew Marc Weisel, Macquarie Research - Former Analyst [66]

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Sounds good. Next question, any change to the expectations for the potential business interruption insurance recovery, last quarter you talked about $30 million to $49 million is that still a good number to use?

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [67]

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Well, it's done. We got our final settlement, so in the aggregate we received $46 million and it's done. So you never know.

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Operator [68]

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There are no additional questions at this time, this concludes our question-and-answer session. I would like to turn the conference back over to Ben Fink for closing remarks.

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Benjamin M. Fink, Western Midstream Operating, LP - Chairman of the Board at Western Gas Holdings, LLC [69]

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I appreciate the dialogue and your time this quarter. We look forward to doing this again in 3 months time. Thank you all for your support.

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Operator [70]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.