01—Abstract
Summary
Summary of the 10-K filed February 26, 2021. Cited figures are marked; the original filing is the authoritative source.
Western Midstream Partners, LP (NYSE: WES) reported for fiscal 2020 a midstream business with operating income of $878.9 milliona, net income of $516.9 million, and Adjusted EBITDA of $2,030.4 million, up from $1,719.1 million in 2019.
Operating income included goodwill and long-lived asset impairments of $644.9 millionb, including a $441.0 million goodwill impairment for the gathering and processing reporting unit. Free cash flow was $1,227.1 million, versus $37.1 million in 2019, and net cash provided by operating activities was $1,637.4 million. Occidental Petroleum, which owns the general partner, held 214,281,578 common units (50.7% limited partner interest) as of December 31, 2020, and accounted for 66% of total revenues and other.
The partnership reduced its quarterly distribution by 50% during 2020 to $0.31100c per unit, and the fourth-quarter 2020 distribution of $0.31100 was paid February 12, 2021. The company guided to 2021 total capital expenditures of $275.0 million to $375.0 million and a full-year 2021 distribution of at least $1.24 per unit. Total debt carrying value was $7.9 billion at year-end, and WES Operating's credit ratings were downgraded below investment grade by Fitch, S&P, and Moody's in 2020, increasing annualized borrowing costs by $43.0 million.
The company also announced a $250.0 milliond common unit buyback through December 31, 2021, under which 2,368,711 units had been repurchased for $32.5 million by year-end. Key risks disclosed include dependence on Occidental for over 50% of revenues, a $441.0 million goodwill impairment and further potential long-lived asset impairments, the pending Sanchez bankruptcy rejection attempt affecting Springfield and Brasada assets, an EPA/Colorado enforcement action against a subsidiary at the Fort Lupton facility, and a lawsuit against Enterprise over Mont Belvieu revenue allocation.
02—Key points
Key Highlights
- Adjusted EBITDA rose to $2,030.4 million in 2020 from $1,719.1 million in 2019; Adjusted gross margin rose to $2,718.2 million from $2,428.1 million.
- Operating income fell to $878.9 million from $1,231.3 million, reflecting $644.9 million of impairments including a $441.0 million goodwill impairment for the gathering and processing reporting unit.
- Free cash flow was $1,227.1 million in 2020 versus $37.1 million in 2019, driven by a $765.7 million decrease in capital expenditures.
- Quarterly distribution was cut 50% in 2020 and held at $0.31100 per unit for each 2020 quarter; 2021 guidance calls for a full-year distribution of at least $1.24 per unit.
- WES Operating's credit ratings were downgraded to below investment grade by all three major agencies in 2020, adding $43.0 million to annualized borrowing costs.
- Occidental owns the general partner and held 50.7% of the limited partner interest; Occidental represented 66% of total revenues and other in 2020.
- A $250.0 million common unit buyback runs through December 31, 2021, with $32.5 million repurchased in 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 26, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $2.77B$2.75B | +1.0% |
| Operating Expenses | $2.13B$1.75B | +21.6% |
| Operating Income | $878.91M$1.23B | −28.6% |
| Interest Expense | $380.06M$303.29M | +25.3% |
| Net Income | $527.01M$697.24M | −24.4% |
| EPS (Basic) | $1.18$1.59 | −25.8% |
| EPS (Diluted) | $1.18$1.59 | −25.8% |
05—Questions
Frequently Asked Questions
How much did WES earn and how did it generate cash in 2020?
Net income was $516.9 million and net cash provided by operating activities was $1,637.4 million in 2020. Total revenues and other were $2,772.6 million. Capital expenditures fell to $423.1 million from $1,188.8 million, which lifted free cash flow to $1,227.1 million.
What drove the drop in operating income in 2020?
Operating income fell to $878.9 million from $1,231.3 million, mainly due to impairments totaling $644.9 million, including a $441.0 million goodwill impairment for the gathering and processing reporting unit recorded in the first quarter of 2020, and $203.9 million of long-lived asset and other impairments.
Will the distribution be restored?
The partnership cut its quarterly distribution by 50% in 2020 and has paid $0.31100 per unit each quarter of 2020, with the fourth-quarter payment made February 12, 2021. For 2021, the company provided guidance of a full-year distribution of at least $1.24 per unit, subject to quarterly board evaluation.
How dependent is WES on Occidental?
Very dependent. Occidental owns the general partner and held 214,281,578 common units, a 50.7% limited partner interest. For 2020, 66% of total revenues and other, 41% of natural-gas throughput (excluding equity investments), and 88% of crude-oil and NGLs throughput were attributable to Occidental-owned or controlled production.
What are the main balance sheet and credit concerns?
Total debt carrying value was $7.9 billion at December 31, 2020. Credit ratings on WES Operating's debt fell below investment grade at Fitch, S&P, and Moody's during 2020, which raised borrowing costs by $43.0 million annualized. The company had $2.0 billion of available RCF capacity at year-end and $5.1 million of letters of credit outstanding.
06—Continue