Western Midstream Partners Enhances Gas Contracts in Delaware Basin

Western Midstream Partners Enhances Natural Gas Contracts in the Delaware Basin

On January 20, 2026, Western Midstream Partners, LP (NYSE: WES), based in Houston, revealed significant amendments to natural gas gathering and processing contracts within the Delaware Basin. This strategic move involves a partnership with Occidental Petroleum Corporation, switching from a traditional cost-of-service model to a more streamlined, fixed-fee structure. This change aims to bolster the economic sustainability of gas operations within the Basin, while Occidental will exchange a substantial number of common units, valued at approximately $610 million, for enhanced contract terms.

Key Changes in Contractual Structure

The updated agreements with Occidental will lead to the elimination of the previous cost-of-service structure by introducing a fixed-fee framework, which is designed to better align interests and simplify cost management for Western Midstream. Approximately 9% of WES’s total revenue will still depend on cost-of-service rates; however, a majority will transition to fixed fees. These changes are expected to improve the attractiveness of properties within Occidental's portfolio and enhance overall operational efficiency.

As part of the new contracts, WES has also established a new arrangement with ConocoPhillips, which further diversifies its revenue sources by reducing dependence on related-party revenues. The agreement includes an acreage dedication and is designed to boost WES's operational footprint in the Delaware Basin.

Transaction Highlights

The primary amendments involve crucial volumetric commitments and protection through significant Minimum Volume Commitments (MVCs), which will ensure a steady stream of natural gas processing and gathering capacity through the duration of the contracts. Furthermore, these amendments were scrutinized and approved by WES's Special Committee—a move that aims to ensure accountability and sound governance practices within the organization.

Oscar Brown, President and CEO of Western Midstream, expressed optimism regarding these changes, stating that the transition to a fixed-fee structure reflects mature operational practices within the Delaware Basin. He remarked, “This evolution strengthens alignment with our largest producer and further diversifies our customer base, enhancing transparency and reinforcing our ability to deliver enduring value for our stakeholders.”

Financial Implications

The implications of these amendments go beyond mere operational changes. As WES integrates these new structures from 2026 onwards, the anticipated growth in Adjusted EBITDA, along with ongoing distribution savings resulting from the common unit redemption, showcases a commitment to maintaining approximately 3.0x leverage ratios, even amidst extensive capital investments projected to total around $1.1 billion in 2026.

This successful transitioning illustrates Western Midstream’s dedication to navigating complex market dynamics while ensuring sustained financial flexibility. The strategic partnerships and contract adjustments aim to secure Western Midstream’s standing as a leader in the midstream oil and gas industry, accelerating potential growth across its asset base.

Looking Ahead

Western Midstream plans to maintain its innovative trajectory through continuous strategy refinement. The company will further discuss these strategic shifts—including the operational logistics and anticipated impacts—during a fireside chat featuring Oscar Brown and Kristen Shults, CFO of WES. This discussion will be accessible via their website, underlining Western Midstream's commitment to transparency and investor engagement.

In conclusion, as Western Midstream adapts to a changing landscape and embraces a forward-thinking approach, these amendments to their natural gas contracts not only signify a pivotal transition in their operational model but also highlight their resilience and strategic agility in maximizing long-term shareholder value. By enhancing their contracts within the Delaware Basin, WES is poised to leverage its assets effectively, ensuring prosperity for years to come.