Western Midstream Resets Delaware Basin Gas Contracts with Occidental
Western Midstream has reset Delaware Basin natural gas gathering fees, shifting to fixed-fee contracts with Occidental and adding a new ConocoPhillips agreement while redeeming common units.
(P&GJ) — Western Midstream Partners has amended its Delaware Basin natural gas gathering and processing contracts with a subsidiary of Occidental Petroleum, shifting from a cost-of-service structure to fixed fees in exchange for common units and resetting long-term economics on one of its largest systems.
Under the amendments, Western Midstream will transition its most significant cost-of-service gathering agreement to a simplified fixed-fee structure earlier than previously scheduled. The revised terms remain supported by acreage dedications and minimum volume commitments, while providing greater fee certainty through the mid-to-late 2030s.
In a related move, Western Midstream entered into a new fixed-fee natural gas gathering and processing agreement with ConocoPhillips covering a portion of ConocoPhillips’ Delaware Basin production. The new agreement includes an acreage dedication and extends into the early 2030s, further diversifying Western Midstream’s customer base and reducing related-party revenue exposure.
As consideration for the Occidental contract amendments, Occidental will transfer 15.3 million Western Midstream common units — valued at roughly $610 million — to Western Midstream. The units will be redeemed and cancelled, reducing Occidental’s ownership stake from about 42% to roughly 40%. Western Midstream said the exchange was structured to be value-neutral over time, with distribution savings expected to largely offset lower operating cash flow associated with the fee reset.
The amended contracts are expected to reduce the portion of Western Midstream revenue tied to cost-of-service arrangements to about 9%, with most remaining cost-of-service provisions expiring or converting to fixed fees in the coming years.
“These changes represent a significant step in WES's continuing evolution after becoming a standalone midstream enterprise,” said Oscar K. Brown, president and chief executive officer of Western Midstream. “The cost-of-service model was instrumental in safeguarding cash flows during our substantial investment in building WES's Delaware Basin gathering system. As the basin has matured, transitioning to a simplified, fixed-fee structure is both logical and timely. This evolution strengthens alignment with our largest producer, further diversifies our customer base, enhances transparency, and reinforces our ability to deliver enduring value for our stakeholders.”
Brown said the unit exchange and contract reset are designed to support long-term returns while maintaining balance-sheet discipline.
“The revised natural-gas gathering terms in exchange for common units is a highly strategic transaction for WES, realigning our equity capital structure to accommodate changes that we believe provide long-term strategic benefits to WES,” he said. “Additionally, redeeming the units received from Occidental enhances Adjusted EBITDA per unit, creating value for all unitholders, while still maintaining the public float. Even as we undertake a robust capital program in 2026 and integrate Aris, we expect to maintain net leverage at or near 3.0x, demonstrating our commitment to disciplined capital allocation and financial flexibility.”
The amended Occidental contracts take effect Jan. 1, 2026, while the new ConocoPhillips agreement becomes effective Feb. 1, 2026. The unit redemption is scheduled for Feb. 3, 2026.