Western Midstream’s Q1 2025 Distribution Boost Signals Resilience in Midstream Energy

Western Midstream Partners, LP (NYSE: WES) has announced a 4% quarterly distribution hike to $0.910 per unit for Q1 2025, marking a significant milestone for investors in this midstream energy MLP. With a 13% annualized increase over 2024’s base distributions, this move underscores the partnership’s commitment to rewarding unitholders while navigating a challenging energy landscape. As the company prepares to release its full Q1 earnings on May 7, 2025, and host an investor call the following day, stakeholders are focusing on operational execution, strategic projects, and the sustainability of its growth trajectory.

Distribution Growth Amid Volatile Markets

The $0.910 per unit distribution, payable on May 15 to holders as of May 2, aligns with WES’s strategy to prioritize “mid-to-low single-digit annual distribution growth.” This increase brings the annualized rate to $3.64—a notable jump from the $3.23 per unit paid in 2024. The stability of this payout is underpinned by WES’s fee-based business model, which shields over 90% of its cash flows from commodity price swings. This insulation is critical in an environment where oil and gas prices remain volatile due to geopolitical tensions and shifting demand dynamics.

Key Drivers: Infrastructure Expansion and Strategic Partnerships

The partnership’s recent moves highlight its focus on high-return projects and long-term contracts. Notably, the Pathfinder pipeline, a 42-mile, 30-inch produced-water transport system, was greenlit to address disposal challenges in the Delaware Basin. This project, expected to be operational by early 2027, will transport over 800 MBbls/day of produced water to lower-pressure zones, reducing operational costs for producers like Occidental Petroleum. A recent agreement with Occidental secures 280 MBbls/day of gathering/transportation capacity and 220 MBbls/day of disposal capacity, with minimum-volume commitments that bolster WES’s cash flow predictability.

Additionally, WES plans to invest $400–$450 million over two years in nine new saltwater disposal facilities and regional gathering terminals. These expansions align with its 2025 guidance of $625–$775 million in capital expenditures, with 50% allocated to the Delaware Basin. The company also aims to generate $1.275–$1.475 billion in free cash flow this year—a 4% midpoint increase over 2024—driving confidence in sustaining distributions.

Analyst Outlook: Mixed Signals but Structural Strengths Remain

While Zacks Investment Research forecasts a 42.86% drop in Q1 2025 EPS to $0.84 versus the prior year—a decline attributed to one-time charges and lower commodity prices—the company’s revenue is projected to rise 6.46% to $945.11 million. Full-year 2025 estimates suggest a 5.21% revenue increase to $3.79 billion, despite a 14.93% EPS decline to $3.42.

Despite these headwinds, WES’s valuation remains attractive. Its Forward P/E of 10.24 is nearly half the industry average of 19.45, signaling a potential undervaluation. However, its Zacks Rank of #3 (Hold) reflects near-term uncertainties, including project delays and macroeconomic pressures.

Risks and Considerations

• Commodity Price Volatility: While 90% of WES’s cash flow is fee-based, the remaining 10%—exposed to oil and gas prices—could pressure margins if prices slump further.
• Execution Risks: The Delaware Basin’s produced-water projects face permitting and construction hurdles that could delay timelines and inflate costs.
• Regulatory Uncertainty: Environmental regulations, particularly around water disposal, could impose additional compliance costs.

Conclusion: A Conservative Bet on Midstream Resilience

Western Midstream’s Q1 distribution boost and strategic investments position it as a stable MLP in a turbulent sector. With 90% of cash flows insulated from commodity swings and projects like Pathfinder addressing critical infrastructure gaps, WES is well-positioned to capitalize on long-term energy demand.

However, investors must weigh these positives against near-term risks. The 13% annualized distribution growth and $1.475 billion free cash flow target offer tangible rewards, but the stock’s 9.61% YTD decline—underperforming both the sector and S&P 500—hints at broader market skepticism.

For income-focused investors seeking exposure to midstream energy, WES’s $3.64 annualized distribution and fee-based model make it a compelling, though not without risk, play. The May 7 earnings release will be pivotal: strong execution on capital projects and contractual commitments could push the stock toward its 52-week high of $39.50. Stay tuned.