Western Midstream renegotiates Occidental's contracts in the Delaware Basin

Western Midstream Partners, the operator of a pipeline in Delaware Basin, announced on Tuesday that it had renegotiated contracts for its Delaware Basin assets with Occidental Petroleum. The new contract provides a "simpler fixed fee structure" for natural gas gathering.

Western Midstream will receive 15.3 million units of common stock worth $610 million as part of the deal. This would reduce Occidental's ownership by about 40% once the units have been redeemed.

According to LSEG data, the U.S. shale producers is Western's largest shareholder.

After the amendment, about 9% of Western Midstream’s revenue will be under cost-of service rates. Most of these expire in the late 2020s to mid-to-late 30s when they could convert into fixed-fee terms.

Western used to charge a fee based on actual 'costs of providing midstream /services, plus an allowable return. Under the new agreement, Occidental pays a fixed amount.

Western Midstream has also signed an agreement for the gathering and processing of natural gas with ConocoPhillips, covering a portion its Delaware Basin volumes.

Western Midstream stated that the?ConocoPhillips contract, which extends into early 2030s will diversify revenue streams by reducing related party revenues by more than 10%.

The amended contract with Occidental 'became effective on January 1, this year. The agreement with ConocoPhillips 'will be?effective from February 1. And the common units will redeemed by Western on February 3.

The move to fixed-fee terms is expected to have minimal impact on adjusted core profits from 2028-2032, as the remaining contract liabilities are recognized. (Reporting and editing by Leroy Leo in Bengaluru, with Sumit Saha reporting from Bengaluru)

(source: Reuters)