Western Midstream Partners LP

NYSE:WES

Earnings Call Analysis

WES Reports Strong Growth and Maintains High Distribution Yield

Western Midstream Partners (WES) enjoyed a successful quarter with net income of $282 million and adjusted EBITDA of $567 million. Though throughput expectations for crude oil and NGLs were revised downwards, the company anticipates high-end adjusted EBITDA guidance between $2.2 billion and $2.4 billion for 2024, alongside free cash flow of $1.05 billion to $1.25 billion. A new agreement will enhance processing capacity in the Delaware Basin starting mid-2025. Notably, WES declared a stable distribution of $0.875 per unit, reflecting a robust 52% increase earlier this year, securing its position as the top distribution yield among midstream peers.

A Strong Start Under New Leadership

The third quarter earnings call painted a promising picture for Western Midstream Partners (WES), particularly amid a leadership transition to Oscar Brown as CEO. Brown noted being deeply familiar with the company's strategic mission and highlighted the transformative journey WES has undergone under former CEO Michael Ure. This transition appears to be smooth and is expected to lead to a new phase of growth while maintaining the company's commitment to delivering superior customer service.

Key Financial Highlights

For Q3 2024, WES reported a net income of **$282 million** and adjusted EBITDA of **$567 million**. While adjusted gross margins experienced a slight decline due to lower natural gas liquid recoveries and reduced commodity prices, the cash flow from operating activities was robust at **$551 million**, leading to free cash flow of **$365 million**. The company declared a steady base distribution of **$0.875 per unit**, indicating stability amidst changing conditions.

Operational Performance Metrics

WES reported a **1%** increase in natural gas throughput due to strong performance in the Powder River and Delaware basins, achieving a record **98% operability**. However, crude oil and NGL throughput saw a **2%** decline primarily due to decreased activity in the DJ Basin and asset divestitures. Producing 2% more produced water throughput this quarter indicates continued efficiency, though future volumes may fluctuate as customers adapt to elevated recycling practices.

Guidance Adjustments and Future Outlook

Looking ahead, despite tempered throughput expectations for crude oil and NGLs, WES aims to remain at the high end of previously disclosed adjusted EBITDA and free cash flow guidance for 2024, estimated between **$2.2 billion to $2.4 billion** and **$1.05 billion to $1.25 billion**, respectively. For 2025, WES anticipates moderate growth, projecting average year-over-year throughput increases for crude oil and NGLs to be in low double digits percentage terms.

Expansion and Strategic Opportunities

WES has begun allocating additional capital towards the Powder River and Uinta Basins, focusing on organic growth projects with sound payback periods. The company aims to continue exploring M&A opportunities while ensuring any acquisition aligns with its high return thresholds. Brown emphasized the priority of maintaining a strong investment-grade balance sheet throughout these strategic expansions.

Market Position and Valuation Perspective

In a broader context, WES ranks high among midstream MLPs, boasting the highest distribution yield within its sector thanks to a **52%** increase in its base distribution earlier this year. Formerly trading at an attractive **8.7x enterprise value to EBITDA** ratio, WES's position favors potential valuation gains amid improving sector prospects and strong cash flow generation, making it an attractive option for both value-oriented and growth-focused investors.

Summary and Conclusion

Overall, WES appears well-positioned for future growth despite recent challenges. The leadership transition has not disrupted the strategic focus on capital allocation, operational optimization, and stakeholder value. Investors should monitor upcoming updates on fourth quarter results and 2025 guidance to assess the firm’s trajectory amid evolving market conditions and continued operational developments.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Western Midstream Partners Third 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 Third 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 include our newly appointed Chief Executive Officer, Oscar Brown; Danny Holderman, our Chief Operating Officer; and Kristen Schultz, our Chief Financial Officer.

I'll now turn the call over to Oscar.

[Oscar Brown, executive]

Thank you, Daniel, and good afternoon, everyone. Let me first take a moment to say how thrilled I am to be here today as the new CEO of Western Midstream.

As a member of the Board since 2019, I am intimately familiar with, and have been supportive of, the partnership's mission, vision and strategy. I would like to thank Michael Ure for all his outstanding contributions that have made WES the best-in-class midstream partnership that it is today.

Under Michael's leadership, WES has undergone an impressive transformation including, standing up the partnership as an independent business, significant growth in the Delaware Basin, the acquisition of Meritage Midstream in the Powder River Basin, operational improvements and cost reductions and the return of $4.6 billion to unitholders through distributions and unit repurchases, all while significantly lowering leverage for 5x to just under 3x today. As we close out this chapter of the WES's story, I'm extremely honored to have been chosen by the Board to lead WES on the next chapter of growth and development.

Now turning to third quarter earnings. Yesterday, we reported another operationally successful quarter for WES, marked by strong customer service and continued flow assurance for our producers, and operability above 98%, despite elevated plant turnaround activity. Our natural gas throughput increased sequentially due to robust throughput growth in the Powder River Basin and our seventh consecutive quarter of record natural gas throughput in the Delaware Basin.

Our produced water volumes also increased quarter-over-quarter despite continued elevated levels of recycling activity used in the upstream operations of our producers, which Danny will comment on shortly. While we still expect to be at the high end of our guidance range for the year, our adjusted EBITDA declined relative to the second quarter as a result of decreased natural gas liquids volume under our fixed recovery contracts, coupled with lower commodity pricing, lower distributions from our equity investments and higher seasonally driven operations and maintenance expense.

As we focus on the fourth quarter, we expect our adjusted EBITDA to increase due to higher throughput, primarily from the Delaware Basin. Our expectations of higher throughput are supported by short-term forecasts and consultation with our customers, including well connection activity through year-end. In addition, we expect lower operating and maintenance expense in the fourth quarter.

Turning to commercial development and subsequent to quarter end, we executed new agreements pertaining to our Mi Vida joint venture to realign the commercial structure tied to the facility. These new agreements provide WES with 100 million cubic feet per day of dedicated natural gas processing capacity at the plant starting in mid-2025. This will enable us to provide incremental flow assurance for our customers in the Delaware Basin.

In mid-August, we issued $800 million of new senior notes, the proceeds of which we will use to retire debt maturing in February and June of next year and for general partnership purposes. Our trailing 12-month net leverage ratio has comfortably reached our year-end 2024 threshold of 3x, and we continue to look for the most efficient ways to allocate capital to generate the best returns for our unitholders over time.

As discussed last quarter, these options include: first, investing capital to prudently expand the business. We will allocate capital towards organic growth projects that grow our volumes over time with reasonable payback periods and that meet our return thresholds. This is usually our lowest risk, highest potential return option.

Second, allocating capital towards accretive M&A. We will evaluate strategic opportunities that enhance the value of our existing asset base, such as the Meritage Midstream acquisition. Keep in mind that we will hold any potential acquisition to a very high standard as it must meet our risk-adjusted return thresholds relative to organic growth opportunities.

And finally, increasing the base distribution. As our business grows and we generate incremental free cash flow, management and the Board will continue to evaluate opportunities to grow the base distribution in line with the overall growth of our business. Additionally, if our business outperforms relative to our initial expectations in a given year, and we have exhausted other higher return opportunities, we also have the enhanced distribution framework in place to return incremental capital to unitholders.

With that, I will turn the call over to our Chief Operating Officer, Danny Holderman, to discuss our operational performance in the quarter.

[Daniel Holderman, executive]

Thank you, Oscar, and good afternoon, everyone. Our third quarter natural gas throughput increased by 1% on a sequential quarter basis as a result of strong throughput growth in the Powder River and Delaware basins, and at our Chipeta complex of Utah. These increases were partially offset by lower volumes in the DJ Basin and in South Texas, due to plant turnaround activities and from our other assets, including the sale of our Marcellus assets in the second quarter.

Our total crude oil and NGL throughput declined by 2% on a sequential quarter basis, primarily due to decreased throughput in the DJ Basin, the sale of the Wamsutter oil pipeline in Wyoming and lower volumes associated with our equity investments. These declines were partially offset by record volumes in the Delaware and Powder River basins.

Our produced water throughput increased by 2% on a sequential quarter basis despite elevated levels of recycling activities by our producers. While water recycling is a growing practice and impacting near-term throughput, we expect those volumes to cycle into our system in future periods.

Our third quarter per Mcf adjusted gross margin for our natural gas assets decreased by $0.04 compared to the prior quarter. This decrease was primarily driven by lower natural gas liquids recoveries under our fixed recovery contracts, coupled with lower overall commodity pricing. Additionally, we experienced increased throughput at the Powder River Basin complex, which has a lower per Mcf margin as compared to our other natural gas assets. Going forward, we expect our fourth quarter per Mcf adjusted gross margin to be in line with the third quarter.

Our third quarter per barrel adjusted gross margin for our crude oil and NGL assets decreased by $0.08 compared to the prior quarter, primarily due to the timing of distribution payments associated with our equity investments. We expect our fourth quarter per barrel adjusted gross margin to be modestly higher relative to the third quarter due to the timing of distribution payments associated with our equity investments.

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

Turning our attention to the remainder of the year. Based on our operated throughput performance to date and our current expectations for the fourth quarter, we now expect our average year-over-year throughput to increase by low double digits percentage growth for crude oil and NGLs. This increase is slightly less relative to our initial expectations as a result of lower throughput expectations in the Delaware Basin, partially offset by slightly higher throughput growth in the Powder River and DJ Basins. Additionally, we now expect our average year-over-year throughput to increase by low double digits percentage growth for produced water due to continued levels of water recycling for upstream operations from certain of our producing customers.

However, these barrels will eventually flow onto our systems as they are dedicated to WES, and this near-term reduction is not an indication of inferior wells or poor rock quality in the basin. Furthermore, as producers continue to utilize more barrels for drilling and completion activities, this could lead to volume variability on an ongoing quarterly basis.

Finally, our average year-over-year throughput expectation for natural gas remains unchanged at mid- to upper teens percentage growth, which continues to be supported by strong year-over-year throughput growth in the Delaware, DJ and Powder River basins.

With that, I'll turn the call over to Kristen to discuss our financial performance during the quarter.

[Kristen Shults, executive]

Thank you, Danny, and good afternoon, everyone. During the third quarter, we generated net income attributable to limited partners of $282 million and adjusted EBITDA of $567 million. Relative to the second quarter, our adjusted gross margin decreased by $8 million. As Oscar mentioned, this decrease was primarily driven by lower natural gas liquids recoveries under our fixed recovery contracts, coupled with lower commodity prices and decreased distributions from our equity investments. As expected, we experienced a sequential quarter increase in our operation and maintenance expense, which was primarily driven by increased maintenance and repair expense.

Our utility costs decreased slightly in the third quarter due to lower ERCOT pricing that we benefited from in the second half of the quarter. Going forward, we would expect our operation and maintenance expense to trend modestly lower in the fourth quarter, mostly due to lower maintenance and repair expense, especially since the major plant turnaround activity is behind us for the year.

Our property and other tax expense decreased on a sequential quarter basis from a reduction in ad valorem property tax accrual related to lower property values in Colorado. Going forward, we would expect our property and other taxes to be slightly higher, but lower than second quarter levels.

Turning to cash flow. Our third quarter cash flow from operating activities totaled $551 million, generating free cash flow of $365 million. Free cash flow after second quarter 2024 distribution payment in August was $24 million. As previously announced, we issued $800 million of 5.45% senior notes due in 2034 that will be used to retire upcoming note maturities in 2025 and for general partnership purposes. We were pleased with how well the issuance was received by the market as the order book was more than 4x oversubscribed, and the deal ultimately priced at 155 basis points above the 10-year treasury rate, which was the best 10-year credit spread in WES' history.

In October, we declared a base distribution of $0.875 per unit, which was unchanged relative to our prior quarter distribution paid in August and is payable on November 14 to unitholders of record as of November 1.

Focusing on our 2024 financial guidance, despite reducing our throughput expectations for crude oil and NGLs and produced water, 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. Our full year capital expenditure guidance range remains unchanged at $700 million to $850 million, implying a midpoint of $775 million for 2024.

Even though we still expect to spend approximately 80% of our capital budget in the Delaware Basin, we have begun to allocate incremental capital towards the Powder River and Uinta Basins to facilitate throughput growth next year. Based on our third quarter distribution announcement, we have now achieved our full year base distribution guidance of at least $3.20 per unit to be paid in calendar year 2024.

Focusing on 2025, after a strong year of organic throughput growth in both the Delaware and DJ Basins, we expect our overall throughput growth rates for all products to moderate in 2025 relative to 2024. It's important to remember that our 2025 throughput will not include approximately 23,000 barrels per day of crude oil and NGLs, and 38 million cubic feet per day of natural gas throughput associated with several noncore asset sales that closed in the first half of this year.

The volumes lost from these asset sales represent approximately $26 million of adjusted EBITDA in 2024 that will not repeat in 2025. Additionally, we expect a $20 million reduction in 2025 fee revenue associated with demand volumes from our crude oil assets in the DJ Basin and our natural gas and crude oil assets in South Texas.

With that said, we are still working through the budgeting process with all of our producing customers, and we will provide our 2025 throughput expectations and financial guidance when we report our fourth quarter earnings in late February.

With that, I will now turn the call back over to Oscar.

[Oscar Brown, executive]

Thanks, Kristen. Before we open it up for Q&A, I would like to highlight a few key points on why WES continues to be very well positioned.

First, WES remains a very attractive investment opportunity and continues to offer one of the most compelling distribution yields relative to the average yield of all the subsectors of the S&P 500. Additionally, the 52% increase in the base distribution that was implemented in the first quarter of this year has enabled WES to maintain the highest distribution yield amongst the midstream MLPs and all other midstream companies. Furthermore, when you compare WES and the several midstream peers to all companies within the Russell 3000 Index, WES now ranks #1 in terms of distribution yield for entities with an investment-grade credit rating.

Second, MLPs continue to trade at a low valuation of approximately 8.7x on an enterprise value to EBITDA basis, a discount of 5x compared to the average MLP valuation from 2011 through 2016. This continues to represent one of the lowest valuations in the history of the MLP space, despite the fact that the sector is extremely well positioned for the future growth due to strong balance sheets, increased free cash flow generation and supportive contract structures.

Third, these positive aspects of the sector are all characteristics of the new MLP model. We continue to argue that the new MLP model is deserving of a valuation rerate, even though the valuation gap between the MLPs and all other midstream companies has recently widened considerably. This valuation discount continues to defy expectations, 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.

The combination of strong free cash flow generation and the fact that MLPs offer one of the most advantaged differentiated tax structures continue to present a very compelling investment opportunity for WES and for the MLP space as a whole.

And finally, I want to assure everyone that I will continue to advance WES's mission, vision and strategic initiatives. WES has become a leader in the midstream space by focusing on providing superior customer service and leading the optimization of the new MLP model. We have a very strong financial and operational base which provides this team with an excellent platform to lead WES on its next chapter of growth and development.

As a member of the Board since 2019, I played an important role in shaping the development of the partnership's goals and objectives. And I want to assure all of you that our capital allocation priorities of executing on high-return organic expansion opportunities, opportunistically pursuing accretive M&A, and growing the base distribution over time in line with the growth of our business, all remain the same. We are committed to executing on these priorities while maintaining our strong investment-grade balance sheet.

To close, I am pleased to announce that we published our 2023 Sustainability Report yesterday, and I would encourage all of you to download a copy of the report and read about our accomplishments. I would also like to thank the entire WES workforce for all of their continued hard work and dedication to our partnership. We have accomplished a lot this year, and I look forward to finishing 2024 on a high note and updating you on our fourth quarter results in late February.

With that, we'll open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Jeremy Tonet at JPMorgan.

[Jeremy Tonet, analyst]

Really just one question for me. I want to touch base on, Oscar that, CEO transition here from thus -- the market side, Mike had been with the company for some time, was really the face of the company to many of us. And the transition just seemed pretty abrupt. And so I was just wondering if you could walk us through a bit more the process here. I guess, just -- it seemed a bit abrupt in timing. So if anything you could share with us would be helpful.

[Oscar Brown, executive]

Sure. Well, from our perspective, it's been pretty smooth. It's been a pretty smooth couple of weeks. I mean, recall I've worked with Michael since 2016, actually in a number of capacities and considered him a friend [indiscernible] debated and thought about financial policy and operating policy and things like that all through the years. So importantly, you'll find my views on most of those things are the same.

And to the extent, as we've said a couple of times, anyone's concerned, we are -- everything is the same as it's been in terms of our capital allocation policy and our goals for the partnership. So in the last -- from the perspective of kind of the abruptness , number one, just for me, I think it's been great. Michael is going to focus on his faith as you guys know, he's a religious guy and his family and his community. And from my perspective, given the familiarity with the leadership team and the Board and the company, I've been able to slide in very quickly and really just focus the organization on moving forward.

I've seen some long transitions in the past. And so with having two CEOs -- having the building once and all that with all of our constituents can get a little confusing and slow things down. So once we came to an agreement to move forward, we just wanted to move quickly. And so that's where we are.

[Jeremy Tonet, analyst]

Got it. So the transition was mutual, just to be clear?

[Oscar Brown, executive]

Absolutely. And there's no -- as we saw in the 8-K, there's no disagreement with Michael and the company on any matter. So it's going to be a smooth transition. Again if you look back at the last 5 years, it's been quite a journey for the partnership and the team has done a really fabulous job. So I think the next 5 is going to look a little different in terms of focusing again from standing up the business to where it is today and all that's been accomplished, to regenerating organic growth and to really build the business from where it is today. Something like a $22 billion enterprise and hopefully grow that in a big way in the future. So it's just going to be a little bit different path and it felt like an opportune time to allow Michael to focus on the things we held tight.

[Operator]

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

[Manav Gupta, analyst]

My question is a little more on the Delaware Basin. Do you see more consolidation happening in the basin? And does WES see itself as a consolidator in the Delaware Basin?

[Oscar Brown, executive]

Yes. I think as you guys know, it's been a pretty robust M&A environment for the last little bit in the midstream space and really led by strategics. I think we were ahead of the curve on that. Going all the way back to 2023 with Meritage. What we've seen recently, given the strong balance sheets in the space, it feels a lot more like that the sellers have a little bit more advantage than the buyers.

We'll continue to look at M&A, as we always have, really focused on what we can bring to any set of assets that's incremental to others so we can drive real value. So from our perspective, we were always looking and -- but we're also pretty disciplined on that front. If we can do something organic, organic probably wins in a tie, just because we can control the risk better.

But in the Delaware, I think there are opportunities out there, and we see ourselves growing. So hopefully, that answers your question.

[Manav Gupta, analyst]

Absolutely. And second part is some of your peers have already commented on this. It looks like a different Government, different President. Do you see a more favorable regulatory outlook for oil and gas for the next 4 years?

[Oscar Brown, executive]

I'm going to give you a measured response. But the short answer is yes. So I do think that this administration -- this new administration is very likely to be more friendly to oil and gas in general. I think it's widely held view that, at least what we've seen, kind of in the market that, in particular, the midstream space should be one of the primary beneficiaries of that. So we'd anticipate our customers, hopefully being able to move more quickly and grow a little more quickly as well and that should find its way to us.

[Operator]

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

[Keith Stanley, analyst]

Wanted to follow up, I think, Kristen, at the end of the prepared remarks indicated volume growth should moderate in 2025 across the products. Can you give a little more color on what's driving that? And any further characterization you can give on the magnitude of how much volume growth might decelerate?

[Kristen Shults, executive]

Yes, Keith, so we are currently in the process of putting our forecast -- a more robust forecast together for 2025. I think when we take a step back and we look at the forecast that we've received thus far, we still expect growth across the portfolio, but the growth that you've seen within the Delaware DJ basis, in particular, will be at a more relative -- relatively more moderate pace than what you've seen in '23 and '24.

We've had a few years of increased activity levels and incremental wells coming online. And while the activity gets still very strong in those basins, that study activity level is just leading to more moderate growth. So Additionally, when we look at total portfolio growth, our average year-over-year throughput increased from '23 to '24, in part, was due to the acquisition of Meritage Midstream. And so in '24, we haven't had another acquisitions such as this. In fact, we've been divesting assets.

So overall, there's just some commentary around thinking through the differences between what we saw for '23 to '24 and then what we -- how we need to think about that from '24 to '25. Obviously, over the next few months, we'll be receiving updated forecasts from all of our [indiscernible]. We'll continue to work through those as they're continuing to work through their budgets and then a new macro environment as well and that will allow us to provide further thoughts and guidance in February.

[Keith Stanley, analyst]

That's helpful. Second question, can you just talk a little more to the Mi Vida contracting update? Or is the new structure with your JV with Energy Transfer that you now have 100 million cubic feet a day of incremental processing capacity that you can use for your own customers? So you effectively just added half a plant? Or how should we think about that?

[Oscar Brown, executive]

Yes, on that one, I think it's just more of a restructuring of the commercial arrangement. It's sort of a plant within a plant concept. So instead of simply being a 50-50 owner, we've taken basically half the capacity and have full access to that. So we see some incremental benefits to doing that, but it's not a step change. It's not $100 million net adds to our capacity down there.

[Operator]

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

[Zackery Van Everen, analyst]

Just starting back on the kind of moderated growth, I think what you said all makes sense. Does this point to potentially higher rates with your cost of service contracts?

[Kristen Shults, executive]

Yes. So that's probably a little early to give you an update on cost of service mostly because it really does relate to the forecast that we're going to receive in the next few months. So we'll have to come back to that when we issue guidance in February as well.

[Zackery Van Everen, analyst]

Got you. No worries. And then on the lower earnings you mentioned at the end there on the crude assets in the DJ and Eagle Ford. Was that just related to contracts rolling off? Could you just provide a little bit more color there?

[Kristen Shults, executive]

Yes. So I think you're talking about efficiency revenues that we were talking about. And we've been talking about this for the last few years like with South Texas and just some of the step changes that we have in this contract from a rate perspective.

So what we're trying to do is just look across the whole entire portfolio and give a little bit of clarity what that might look like in 2025 there.

[Operator]

Your next question comes from the line of Ned Baramov at Wells Fargo.

[Ned Baramov, analyst]

Just to follow up on the earlier questions regarding your tempered volume outlook for 2025. How do you think about the timing when volumes in the DJ exceed [ NBCs ] and in turn drive EBITDA growth?

[Kristen Shults, executive]

Yes. So we've talked about on the oil side, specifically in the DJ in [ NBCs ] levels there. Obviously, that will really depend on producer forecast and what we get in for 2025. But I would think about that more as a longer-term breaking through that [ NBC ] level something potentially even past 2025 there.

[Ned Baramov, analyst]

That's helpful. And then are there any plans to fill the vacated eighth board seat on the Board of Directors?

[Oscar Brown, executive]

Its Oscar, I'll take that one. So for now, we've set the board at 7, but I would anticipate that would certainly support and kind of expect we would add potentially another independent director. But it's really up to the full board. And for now, we're moving forward with 7 and we'll let to see what happens.

[Operator]

Your next question comes from the line of Indraneel Mitra at Bank of America.

[Indraneel Mitra, analyst]

First question, I know the Mi Vida processing plant, you're kind of just restructuring where it is in the Oxy family -- or sorry, the WES family there. But in terms of how that fits in with the super system, is that kind of a low capacity utilization plan? Or is it kind of core to what you run through your system?

[Daniel Holderman, executive]

I'll do my best to answer. I think I understood you're asking within the complex, is it or higher or lower utility areas, and it would be one of the lower utility areas. So the plants up to the north, et cetera, are where we flow most of the new growth right now. And then it spills over to the south.

[Indraneel Mitra, analyst]

Okay. Great. The second question, any outlook on potential processing plants beyond North Loving coming on in 1Q, '25 and what you would need to underwrite a new processing plant beyond that?

[Oscar Brown, executive]

Yes, I'll start, it's Oscar. Our philosophy on adding capacity implants so it is consistent which is we work with our customers to try to serve them. And if we can come up with a good commercial arrangement to sort of underwrite those plants and certainly we have build. We don't see anything in the immediate future. But again, those development plans are constantly being updated by our customers. So if it makes sense to them and it's good returns for us, then of course, we'll look at that. So nothing imminent today, but something that we always just work with -- our customers to look at. It just really depends on you on the growth in the basin and what kind of contract structure we can underwrite.

[Operator]

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

[Oscar Brown, executive]

Great. Well, thanks, everybody. Thanks again to the full WES team for all the hard work as we continue to grow the business, we look forward to 2025 and seeing -- talking to everybody in February and hopefully seeing many of you on the road in between. Take care.

[Operator]

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