Western Midstream Partners LP

NYSE:WES

Earnings Call Analysis

Western Midstream Reports Strong Q2 Boost and Future Growth Expectations

Western Midstream achieved significant throughput growth for natural gas and crude oil in Q2, driven by strong demand in the Delaware Basin. They reported a net income of $370 million and an adjusted EBITDA of $578 million, despite a 5% decrease from Q1 due to asset sales and higher operational costs. The company expects high-end adjusted EBITDA and free cash flow for 2024, ranging between $2.2-$2.4 billion and $1.05-$1.25 billion, respectively. They forecast continued throughput growth in their key basins at mid- to upper teens percentages for natural gas and produced water, and low teens for crude oil and NGLs.

Strong Operational Performance and Future Projections

In the second quarter of 2024, Western Midstream Partners (WES) delivered a robust operational performance. The company's natural gas and crude oil production reached new heights, setting throughput records in the Delaware Basin for the fifth consecutive quarter. This trend of increasing productivity is expected to continue, positioning WES to achieve the high end of its adjusted EBITDA and free cash flow guidance ranges for the year at $2.4 billion and $1.25 billion, respectively. Furthermore, WES remains committed to its capital expenditure guidance of $700 million to $850 million, with a significant portion dedicated to expansion efforts in the Delaware Basin.

Financial Results and Cash Flow Management

Western Midstream reported net income attributable to limited partners of $370 million and adjusted EBITDA of $578 million. However, adjusted EBITDA saw a sequential decline of 5% or $30 million from the previous quarter due to reduced adjusted gross margin, increased operation and maintenance expenses, and normalized property taxes. Second quarter cash flow from operating activities achieved $631 million, generating $425 million in free cash flow. After considering distribution payments, free cash flow remained at $84 million.

Strategic Capital Allocation and Debt Management

WES continues to strategically allocate capital to maximize returns for unitholders. This includes prudent expansion of the business, accretive acquisitions, and potential increases in base distribution. Having repurchased $135 million of senior notes and achieving a trailing 12-month net leverage ratio of 3x earlier than expected, WES positions itself to focus more on efficient capital allocation without prioritizing debt or equity buybacks.

Key Commercial Agreements and Customer Relationships

The quarter witnessed several key commercial agreements across WES's operational basins. Noteworthy deals include long-term natural gas and produced water service contracts in the Delaware Basin, extending firm processing capacities with Phillips 66 in the DJ Basin, and a multiyear processing agreement with Kinder Morgan supporting their pipeline project in the Uinta Basin. These agreements are expected to bolster WES’s throughput and processing capacities significantly through 2025.

Distribution and Investment Opportunities

WES continues to offer a compelling investment opportunity with a strong distribution yield compared to the S&P 500. The company declared a base distribution of $0.875 per unit for the second quarter, maintaining an annual base distribution guidance of at least $3.20 per unit. Given the strong operational performance and strategic capital allocation, WES aims to sustain this distribution level while potentially increasing it in alignment with business growth.

Sustainability and Future Prospects

Looking ahead, WES plans to release its annual sustainability report, detailing its 2023 accomplishments and future environmental, social, and governance (ESG) goals. The company remains committed to enhancing its sustainability practices while continuing to deliver strong financial and operational performance, thereby creating long-term value for its unitholders and stakeholders.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Second Quarter 2024 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Daniel Jenkins, Director of Investor Relations. Please go ahead.

[Daniel Jenkins, executive]

Thank you. I'm glad you could join us today for Western Midstream's Second Quarter 2024 Conference Call. I'd like to remind you that today's call, the accompanying slide deck and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please reference Western Midstream's most recent Form 10-Q and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today.

Relevant reference materials are posted on our website. With me today are Michael Ure, our Chief Executive Officer; and Kristen Shults, our Chief Financial Officer.

I'll now turn the call over to Michael.

[Michael Ure, executive]

Thank you, Daniel, and good afternoon, everyone. Yesterday afternoon, we reported another strong operational quarter for WES. Our sequential quarter throughput growth was driven by a robust system operability. And as a result, we experienced throughput records from both natural gas and crude oil and NGLs in the Delaware Basin for the fifth consecutive quarter.

Taking these results into consideration, we still expect our throughput to steadily grow for the remainder of the year and for WES to be towards the high end of our 2024 adjusted EBITDA and free cash flow guidance ranges.

The second quarter was also very successful from a commercial perspective as we executed numerous agreements with both new and existing customers in several of our most active basins. First, in the Delaware Basin, we signed several new agreements with both public and private customers for natural gas and produced water services that will positively benefit West starting in the third quarter and to an even greater extent in 2025.

Second, in the DJ Basin, we executed an amendment to DCP Midstream's now Phillips 66 natural gas processing agreement in the DJ Basin to extend the original firm processing capacity of 175 million cubic feet per day from 2027 to 2029 on a 100% take-or-pay basis.

Additionally, this multiyear amendment provides Phillips 66 with an incremental 200 million cubic feet per day of firm processing capacity, primarily supported by minimum volume commitments starting in 2026. If fully utilized, these agreements could fill up the remaining capacity across our DJ Basin complex over the coming years.

Third, and just after quarter end, in Utah, we executed a multiyear natural gas processing agreement with Kinder Morgan in support of their Altamont Green River pipeline project, providing for up to 150 million cubic feet per day of firm processing capacity at our Chipeta facility in the Uinta Basin, which is expected to be in service by mid-2025.

Finally, we executed agreements with several customers supporting Williams Companies MountainWest Pipeline expansion to provide up to 110 million cubic feet per day of natural gas processing capacity at our Chipeta facility. We have already begun to receive a portion of these volumes, and we expect incremental volumes in the months ahead. Taking all these agreements into account, we believe our existing cryogenic capacity at Chipeta of 550 million cubic feet per day may be fully utilized by the second half of 2025.

Turning to the balance sheet. The sale of noncore assets throughout the first quarter and early in the second quarter, enabled us to achieve our trailing 12-month net leverage ratio threshold of 3x earlier than anticipated. In this leverage environment, we will continue to look for the most efficient ways to allocate capital to generate the best returns for our unitholders over time.

Those options include investing capital to prudently expand the business. In order to bring more throughput onto our systems, we will continue to allocate capital to organic growth projects that grow volumes and meet our strict returns thresholds with the goal of driving adjusted EBITDA and free cash flow higher and enhancing our return on assets over time.

Second, allocating capital towards accretive M&A. We continue to evaluate strategic opportunities that will ultimately enhance the value of our existing asset base. such as the Meritage Midstream acquisition that closed in the fourth quarter of 2023.

And finally, increasing the base distribution. As our business grows and we generate incremental free cash flow, management and the Board will continue to look at opportunities to grow the base distribution in line with the overall growth in our business. If our business outperforms relative to our initial expectations in a given year, we also have the enhanced distribution framework in place to return [indiscernible] to unitholders. We will remain opportunistic regarding unit buybacks and additional debt retirement. However, based on current market conditions and our net leverage ratio of 3x, we do not expect these options to be the most efficient way to allocate capital.

With that, I will turn the call over to Kristen to discuss our operational and financial performance.

[Kristen Shults, executive]

Thank you, Michael, and good afternoon, everyone. Our reported second quarter natural gas throughput was relatively flat on a sequential quarter basis, primarily due to strong throughput growth in the Delaware, DJ and Powder River Basins, offset by decreased throughput from the sale of the Marcellus gathering system early in the second quarter.

Our natural gas throughput from our operated assets increased by 3% on a sequential quarter basis. While our reported crude oil and NGL throughput declined by 9% on a sequential quarter basis as a result of equity investment divestitures completed during the first quarter, our crude oil and NGL throughput from our operated assets increased by 6% on a sequential quarter basis due to strong throughput growth in Delaware, DJ and Powder River Basin.

Produced water throughput decreased by 4% on a sequential quarter basis due to fluctuations in produced water used for recycling activities and upstream operations of our producers. Our second quarter per Mcf adjusted gross margin for natural gas assets was relatively flat quarter-over-quarter, and we expect our third quarter per McF adjusted gross margin to be in line with the second quarter.

Our second quarter per barrel adjusted gross margin for our crude oil and NGL assets increased by $0.04 compared to the prior quarter. This was primarily due to the sale of our interest in the Whitethorn and Saddlehorn pipelines in the first quarter. Both of which had a lower than average per unit margins as compared to our other crude oil and NGL assets and increased throughput in the Delaware Basin.

We expect our third quarter per barrel adjusted gross margin to be in line with the second quarter. Our second quarter per barrel adjusted gross margin for our produced water assets was also relatively flat quarter-over-quarter, and we expect our third quarter per barrel adjusted gross margin to be in line with the second quarter.

During the second quarter, we generated net income attributable to limited partners of $370 million and adjusted EBITDA of $578 million. Relative to the first quarter, our adjusted gross margin decreased by $9 million. This decrease was mostly driven by the sale of the Marcellus gathering system and the equity investment, partially offset by higher throughput and profitability from the Delaware DJ and Powder River Basin.

Our adjusted EBITDA decreased sequentially by 5% or $30 million due to the decrease in adjusted gross margin that I just mentioned, increased operation and maintenance expense and more normalized property and other taxes. If you recall, in the first quarter, we benefited from lower-than-anticipated costs, which resulted in higher-than-expected adjusted EBITDA.

Going forward, we expect our operation and maintenance expense to trend modestly higher in the third quarter, primarily driven by increased throughput seasonally higher utility costs and increased asset maintenance and repair expense. As a reminder, we expect seasonality associated with our utility expense in the summer months due to higher estimated electricity pricing and greater energy usage in conjunction with increased throughput.

Turning to cash flow. Our second quarter cash flow from operating activities totaled $631 million, generating free cash flow of $425 million. Free cash flow after our first quarter 2024 distribution payment in May was $84 million. From a capital markets perspective, as previously announced, in the second quarter, we opportunistically repurchased $135 million of senior notes through open market transactions, which has resulted in $150 million of total debt repurchases year-to-date, all at approximately 96% at par.

Finally, in July, we declared a base distribution of $0.875 per unit, which was unchanged relative to our previous announcement in April and is payable on August 14 to unitholders of record as of August 1. Based on our operated throughput performance to date and continued strong producer activity levels, we still expect average year-over-year throughput growth for all products in the Delaware Basin, DJ Basin and Powder River Basin. We still expect our portfolio-wide average year-over-year throughput to increase by mid- to upper teens percentage for natural gas, low teens percentage for crude oil and NGLs and mid- to upper teens percentage for produced water.

Focusing on our financial guidance. With the throughput growth I just described, we still expect to be towards the high end of our previously disclosed adjusted EBITDA and free cash flow guidance ranges of $2.2 billion to $2.4 billion, and $1.05 billion to $1.25 billion for the year, respectively. Additionally, we still expect our 2024 capital expenditure guidance to range between $700 million and $850 million, implying a midpoint of $775 million.

We continue to expect just over 80% of our capital budget to be spent in the Delaware Basin, the majority of which is expansion capital for the North Loving plant construction and additional system expansion to facilitate continued throughput growth.

As previously mentioned, we expect to allocate incremental capital to the Powder River, DJ and Uinta Basin to facilitate throughput growth over the next 18 months. In the Powder River Basin, several existing customers plan to accelerate completion activities as we exit 2024. Thus, we are allocating incremental capital in 2024 and 2025 to expand existing compression facilities and to account for incremental well connects. In the DJ Basin, we expect to invest incremental capital in 2025 to support the new and extended agreements with Phillips 66. And in the Uinta Basin, based on our commercial success connecting Kinder Morgan's Altamont pipeline and with the shippers on Williams Mountain West pipeline expansion, we are allocating incremental capital predominantly in 2025 and to expand pipeline connections, increase existing compression capacity and to expand crude oil stabilization capacity at the facility.

Our full year base distribution guidance of at least $3.20 per unit remains unchanged. We will continue to evaluate the base distribution on a quarterly basis, influenced by the health and growth trajectory of our business. As a reminder, any potential enhanced distribution payment in 2025 will be based on our full year 2024 financial performance, [ governed ] by our year-end 2024 leverage threshold of 3x and subject to the board's discretion.

I'll now turn the call back over to Michael.

[Michael Ure, executive]

Thank you, Kristen. I would like to highlight that we will be releasing our annual sustainability report in the coming weeks, which will detail our 2023 sustainability accomplishments. This report highlights our successful attainment of our 2023 sustainability goals, which included targeting and implementing systems and processes to monitor our GHG emissions, safety culture and community volunteering efforts as well as additional details on all of our environmental, social and governance practices.

Once available, I encourage you to read more about our 2023 accomplishments in the report, and we look forward to building on this momentum in the years ahead as we continue to advance energy by enhancing the sustainability of our operations.

Before we open it up for Q&A, I would like to highlight a few key points and reiterate why WES remains a differentiated and attractive investment opportunity. Since becoming a stand-alone organization, we have worked hard to grow the business while greatly improving the financial position of the partnership. We have achieved record operated throughput for several quarters, which has been driven by our increasing asset operability and continued strong activity levels from our producing customers. These strong throughput numbers are expected to result in record adjusted EBITDA and free cash flow this year, and these improving trends over the past few years have put us in a position to reduce leverage and to return even more capital to stakeholders.

We did this while maintaining strict return thresholds for expansion capital spending, which drove increases in return on assets to upper double-digit territory compared to an average of approximately 13% for our midstream peers. We accomplished all of this while paying approximately $3.5 billion in base and enhanced distributions, reducing $943 million of net debt and repurchasing just over $1.1 billion of WES units or approximately 15% of the unaffected unit count, all since early 2020.

This combination of efforts has culminated in leading unitholder returns and total capital return yield for WES unitholders relative to our midstream peers, the S&P 500 Index and the S&P 500 Energy Index.

Focusing on the distribution yield, WES still offers a very compelling investment opportunity when comparing its yield to the average yield of all subsectors within the S&P 500. In fact, WES offers more than double the average yield of any sector within the S&P 500 index and WES continues to maintain the highest distribution yield amongst our midstream peers. Clearly, WES continues to provide one of the strongest tax-deferred investment opportunities, not only within the midstream space, but relative to all subsectors of the S&P 500.

Finally, from a valuation perspective, the current average MLP valuation still trades at approximately 8.5x, a discount of just over 5x compared to the average MLP valuation from 2011 through 2016. Meanwhile, balance sheets continue to strengthen, free cash flow continues to grow and the future business prospects of the industry remains strong.

Also, the average current distribution yield remains just over 9% compared to the average MLP distribution yield of just under 7% from 2011 through 2016, at time when midstream MLPs generated negative free cash flow and leverage was increasing. We continue to argue that the new MLP model is deserving of a valuation rerate, especially when you take into account the corporate tax burden that C-corps in the midstream space and other sectors of the economy will face over the coming years.

There is no doubt that as net operating losses are exhausted, the current tax burden faced by C-corps will result in less capital available for unitholder returns. which continues to present a very compelling investment opportunity for WES and the MLP space.

To close, I would like to thank the entire WES workforce for all of their hard work and dedication. I would also like to thank all of the teams within our organization that are working to finalize our 2023 sustainability report. The year is off to a strong start, and I look forward to updating you on our third quarter results in November.

With that, we will open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Gabe Moreen at Mizuho.

[Gabriel Moreen, analyst]

I just wanted to ask about the growth that you're seeing in the DJ and the Uinta and it sounds like whether medium term or long term using up the rest of your slot capacity there, how do you think about potentially growing beyond using up that capacity? Is that something you think you're planning for right now and just managing growth just in those basins where I don't think investors were expecting to see that 6 to 12 months ago?

[Michael Ure, executive]

Yes, Gabriel, this is Michael. We're incredibly excited about the new volumes that we're expecting to come on to the system, both in the DJ and the Uinta Basins. We were always big believers in those basins historically and definitely feel that way today.

As we look at it now, no expectations or plans in terms of broad expansions within those areas. Obviously, we will continue to have capital expenditures as it relates to maintenance, compression and well connects, but currently not projecting to have any major projects in those areas. More it's about utilization of existing assets and capacity out there, which we're really excited to be able to service our customers in those areas.

[Gabriel Moreen, analyst]

And then maybe if I can sort of follow up to that question on secondary basins and what you're seeing out there as far as M&A. You're able to get Meritage at a really nice multiple. Are you still seeing that differential out there, I guess, for assets outside the Permian is that of interest, particularly now that you've seen, I guess, some picking up in growth in some other basins?

[Michael Ure, executive]

Yes. For us, our focus really hasn't changed from an M&A standpoint. We're really looking at ways in which we can acquire assets that we can differentiate what it is that is already happening within those assets. And so that primarily means that they're in and around areas where we currently operate. And so as we think about M&A, it's about enhancing typically, it's about enhancing areas which we currently operate and can provide a differentiated set of synergies related to the opportunity itself.

[Gabriel Moreen, analyst]

Great. And then just if I could squeeze one last one in. You mentioned some additional MVCs in the Delaware. Could you maybe quantify some of that? And also within the bigger picture of kind of where you stand third-party business versus OXY, what those MVCs and how they shift things for you?

[Michael Ure, executive]

Yes. So we are able to get MVCs as it relates to contracts that we're getting, and that's irrespective of the counterparty. And so for us, again, we're really focused on returns overall. We want to make sure that we're going to spend any capital that we're able to do that a level that satisfies those returns threshold where the MVCs come into play. And so as you've seen in the transactions or the new commercial deals that we've announced, we've been able to do that with MVCs really across the board, and those are not with related parties.

[Operator]

Your next question comes from the line of Keith Stanley at Wolfe Research.

[Keith Stanley, analyst]

So just touching back on, I guess, CapEx. In the past, you've talked about a meaningful year-over-year decline in 2025 CapEx. Any updated comments you'd make there given the need to invest some in growth in the DJ, PRB and Uinta Basins.

And then separately, any progress on contracting for a new plant in the Permian? Or is there still a lot to do on that before moving forward?

[Michael Ure, executive]

Yes. So we would expect that there will be a step down. There would be a step down in capital for 2025. Obviously, we're excited about the new commercial agreements, which will require a little bit of capital in order to satisfy those agreements and make our customers happy. As it relates to new plants in the Permian, no plans to increase plant capacity in the Permian as we sit here today. So no change from previous comments that we've made on increasing capacity there.

[Keith Stanley, analyst]

The second question, so leverage you got to your 3x target now. Does that impact how you think about the timing for another distribution increase? Or is that more tied to growth in free cash flow in the business?

[Michael Ure, executive]

Yes. It's a little bit of both. Obviously, we're really excited to be able to get to that level earlier than expectations. As we think about base distribution, the base distribution itself, we really try and tie that towards the free cash flow generation of the business and then what it is that we can and should be using that capital for. Now that we are at the 3x leverage level, as I mentioned in my prepared remarks, that really opens up the possibility for us to be able to use that capital without having the need to focus as much on buybacks, whether they're debt or equity around distribution growth -- base distribution growth so.

[Operator]

Your next question comes from the line of Jeremy Tonet at JPMorgan Chase.

[Jeremy Tonet, analyst]

Just wanted to come back to the winter, if I could, and as it relates to Chipeta, just wondering how much weight in processing capacity is there right now? Just trying to think through, I guess, how runway -- how much runway there is before there would need to be more investment?

[Michael Ure, executive]

We do have sufficient capacity as it relates to today to be able to satisfy all of the needs with these incremental new commercial agreements that we've been able to achieve. So I wouldn't expect that, that would require any plant expansion to be able to satisfy that growth that we're expecting and have contracted to bring on to the system.

[Jeremy Tonet, analyst]

Got it. That's helpful. And then you listed a string of commercial wins here. And just kind of curious how capital intensive, I guess, these initiatives are? Or is this just kind of a very accretive filling up open capacity for the most part?

[Michael Ure, executive]

Yes, highly accretive from that standpoint. There is some capital, but it's far more limited capital to be able to satisfy these commercial agreements. So we're really excited to be able to utilize some of the latent capacity that we had in those areas. Like I said, we were always believers that those volumes would come, and now we're seeing some of that progress.

We're really, really happy with the operational efficiencies that we've been able to drive and obviously focus on our customers, which is why we believe in part the new deals were able to come on to the system. So -- but for the most part, a highly accretive minimal capital to be able to satisfy these new agreements.

[Jeremy Tonet, analyst]

Got it. Very helpful. And just last one, if I could, real quick here. I mean we haven't seen I can't recall this number of commercial wins in one quarter. Anything that kind of fed into it now? Do you see more opportunities like this? Just trying to get a better view of the backdrop here?

[Michael Ure, executive]

It comes a little bit in WES. Obviously, the team, I can tell you, is as energized now as they've ever been about getting new transactions coming online. So I would say that the hope is that you can sort of replicate some of these successes every quarter. But as it happens, the transactions themselves take some time to bring on to our systems. So again, a lot of energy around it, a lot of excitement.

We have a phenomenal commercial team that's out there trying to look for transactions all the time. But I certainly expect this number of commercial deals every quarter. I would hope for it, but I shouldn't -- we shouldn't expect that.

[Operator]

Next question comes from the line of Spiro Dounis at Citi.

[Spiro Dounis, analyst]

Just wanted to start maybe with the DJ, if we could. I guess as we understand it, offseason pretty active there so far this year. But I think is the way it works with MVCs, we're maybe not seeing it show up on your side as much. And so I guess I'm just curious, any sense how close you are to seeing the torque from that volume ramp?

[Michael Ure, executive]

Yes. As it relates to crude in particular, we wouldn't expect that we'll exceed those MVCs for 2024. But to your point, they've been active out there. They've seen some incredibly positive results. That's part of the reason why we're seeing some of the real over performance there in addition to new commercial agreements, but in particular, as it relates to the oil side, still below MVC levels expectations out through 2024.

[Spiro Dounis, analyst]

Got it. Okay. So we'll wait on that one. Second question just going to the guidance and sorry if I'm splitting hairs here a little bit, but you reaffirm the top end of the range again, and it would seem as though some of these new agreements that you signed, do have a benefit for 2024. So I guess I'm just curious, were these agreements contemplated in that guide and getting to that top end? Or does this actually create a scenario where maybe you outperformed the high end?

[Michael Ure, executive]

Yes. These will have some impact in 2024, but actually, the vast majority of the impact is in future periods. And so while they're incremental hadn't been planned within our forecast, really doesn't change where we sit as it relates to the guidance on a quarter-on-quarter basis. What it really does, though, is it gives us some really strong tailwinds as it relates to future periods, particularly in assets that we had some latent capacity out there. So really excited about what it does for us in future periods with less of an impact in 2024.

[Operator]

The next question comes from the line of Manav Gupta at UBS.

[Manav Gupta, analyst]

I basically wanted to discuss agreements you're doing with PSX. It looks like you amended an agreement with DCP, which is now PSX and then looks like there is additionality there, incremental volumes coming probably in 2026. So can you talk about the opportunities as DCP, PSX and PSXP have all become PSX, are there more opportunities to do business with this company.

[Michael Ure, executive]

Yes. So actually, this is -- we're really, really proud of the relationship that we've had historically with both DCP as well as P66, so I would say that this relationship has been something that we've had really for a long time. In fact, the extension one of these agreements is one that we entered into about 5 years ago. And so I haven't really seen or I wouldn't attribute any of these new agreements to a changeover in ownership. It's just been a strong relationship we've had for some time.

[Manav Gupta, analyst]

Perfect. And how should we think about volumes and margins that Mentone III is in service? And what has the ramp at North Loving plant looking like?

[Michael Ure, executive]

Yes. North Loving is still expecting to be on time and on budget for Q1 2025. As we look to margins for the third quarter, we would expect margins for the third quarter to be relatively in line with the second quarter.

[Operator]

The next question comes from the line of Neel Mitra at Bank of America.

[Indraneel Mitra, analyst]

I wanted to understand the processing needs past North Loving, I understand there's a lot of interruptible volumes you're offloading there. So when you think about offloading versus processing needs. Could you maybe quantify how much capacity for offloads or timing of when those contracts end? And then would you build a new processing plant if you had enough interruptible volumes that you think it could underlie the plant?

[Michael Ure, executive]

Yes. Thanks, Neel. Good question. So the way that we think about interruptible volumes, generally speaking, is that we -- if we don't have existing capacity available, then that's when we'll try and use [ off of pace ] to take some of that interruptible volume. When it is that we do receive commitments, that's when we try and tie our long-term capital with the long-term commitment of our customers. And that helps us get more comfortable with the investment itself.

As we sit here today, we do have some offloads, and that's really bridging those interruptible volumes until when we get North Loving online. Once North Loving comes online, then we'll bring those onto our system. I guess it depends a little bit in degrees and confidence level on the interruptible side. If we had significant excess interruptible volumes that were adjusted by a plant under the conservative assumptions that we might apply to those volumes coming through our system, then it could justify it. But historically, that's not been the way that we've done it. We've done it more to align our long-term capital with the long-term commitment of our customers.

[Indraneel Mitra, analyst]

Okay. Perfect. Second question pertains to the commercial wins that you had in the Delaware for the quarter. Could you maybe walk through offering gas gathering, crude gathering and water, if you were able to bundle some services and that give you an advantage in procuring some of these contracts?

[Michael Ure, executive]

Yes. So these contracts actually were not necessarily related to bundling. They're just one product set of contracts that we were able to achieve in these particular areas. We do see, however, in the Permian, in particular, great value in us being able to gain new customers on either the water or the gas side, and that has enabled us to differentiate the way that we operate. And as customers get much more comfortable with our area -- or manner of operating, then it has resulted in incremental new volume streams onto the system. So in West Texas, that's definitely been employed as it relates to these new customer contracts for the most part. These are just single product contracts that we've added into.

[Operator]

[Operator Instructions] The next question comes from the line of Zack Van Everen at TPH.

[Zackery Van Everen, analyst]

Just a quick one on the contract extension with PSX or DCP. Was that at the same rate, and it was just a length extension? Or was there any changes to the fixed rate there?

[Michael Ure, executive]

Yes. We typically -- thanks for the question, Zack. We typically don't talk about contract specific items as it relates to any contract that we enter into for various reasons. What I would say though is, again, this highlights the wonderful partnership that we have with them. We think a lot of them overall. And obviously, this series of agreements highlights the strong manner in which we've been able to work together.

[Zackery Van Everen, analyst]

Got you. That makes sense. And then maybe a bit of a hypothetical one here. But on M&A, with PSX going through a bit of a transition, if those DCP assets were ever to hit the market, are you guys -- would that be too high of a concentration any day as far as FTC risk or -- do you think that's something that they would allow, obviously, very hypothetical, but just looking at location and opportunity and how much contracts you already have with them?

[Michael Ure, executive]

Very hypothetical, but very specific, Zack. I can't actually comment on any specific transaction, hypothetical or otherwise. The related M&A I just reiterate kind of what our position is, which is we're looking for ways that we can add some accretive opportunities to us to continue to emphasize what it is, but we believe that we do differently from a customer service standpoint and allow those types of transactions to enhance the returns to the enterprise, which we've been really focused on from the very beginning of becoming a stand-alone enterprise.

[Operator]

Thank you. There are no further questions at this time. Mr. Ure, I turn the call back over to you.

[Michael Ure, executive]

Thank you very much. Thanks, everyone, for joining. This marks the 5-year anniversary of my appointment to this role. I'm so proud of what this organization has been able to achieve the incredible benefits and abilities that we've been able to demonstrate to the market, the debt reduction, the repurchase of units, the increase in the distribution, the new customer wins. Our focus on our customer has been remarkable overall.

I'd like to want to also congratulate Danny Holderman on the appointment as Chief Operating Officer. Danny is an excellent leader, and we really look forward to what he'll continue to do as we focus on operational excellence and excellence in customer service. Want to thank the WES people for their continued efforts in the pursuit of excellence overall. And with that, we thank you all for joining.

[Operator]

This concludes today's conference call. You may now disconnect.