Western Midstream expands Delaware Basin operations with Pathfinder Pipeline and long-term Occidental agreement

Western Midstream Partners, LP (NYSE: WES) has announced a major expansion of its midstream infrastructure in the Delaware Basin, reinforcing its commitment to long-term operational growth and efficiency. The company has sanctioned the Pathfinder pipeline, a large-scale produced-water transportation system designed to enhance disposal capacity while accommodating increased customer activity in the region. Alongside this, Western Midstream has secured a new long-term agreement with Occidental Petroleum Corporation, ensuring stable revenue through firm volume commitments.

In addition to these infrastructure investments, the company has released its 2025 financial guidance, highlighting anticipated growth in earnings, free cash flow, and capital expenditures. The announcement signals confidence in Western Midstream’s ability to sustain distribution increases while reinforcing its position as a leading infrastructure provider in the Delaware Basin.

What Is the Pathfinder Pipeline and How Will It Impact Western Midstream’s Operations?

Western Midstream has approved the construction of the Pathfinder pipeline, a 30-inch, 42-mile long-haul pipeline that will transport over 800,000 barrels per day of produced water to disposal facilities in eastern Loving County, Texas. This initiative is expected to optimize water management by redirecting produced water from high-activity areas experiencing increasing pore pressures to locations with greater disposal capacity. By leveraging its existing infrastructure and strategic landowner partnerships, the company aims to maximize flow assurance, reduce operational bottlenecks, and create new opportunities for organic growth.

The pipeline is part of Western Midstream’s broader midstream services, which include gathering, compressing, treating, processing, and transporting natural gas, as well as handling condensate, natural gas liquids, and crude oil. With a substantial portion of its cash flow protected through fee-based contracts, Western Midstream remains well-positioned to generate stable returns while expanding its infrastructure. The Pathfinder pipeline is expected to play a critical role in strengthening the company’s ability to support Occidental and other operators as they execute long-term development strategies in the region.

How Does the Occidental Agreement Strengthen Western Midstream’s Growth Strategy?

Western Midstream has further reinforced its growth trajectory through a newly executed long-term produced-water agreement with Occidental Petroleum. This agreement secures firm volume commitments, including up to 280,000 barrels per day of gathering and transportation capacity and 220,000 barrels per day of disposal capacity. The firm commitments from Occidental provide Western Midstream with predictable revenue while enhancing operational stability in the Delaware Basin.

As part of this agreement, Western Midstream has amended legacy produced-water contracts with Occidental, retaining cost-of-service and fixed-fee components while extending contract durations. These revisions align with Occidental’s long-term development plans and strengthen Western Midstream’s contractual foundation. Beyond the Delaware Basin, the partnership has extended minimum-volume commitments for natural gas processing in the DJ Basin by up to ten years, which in turn lengthens the company’s natural gas gathering agreement until mid-2035. These amendments further solidify Western Midstream’s long-term financial outlook and its strategic relationship with Occidental.

What Are the Financial Commitments and Timeline for Western Midstream’s Expansion?

To support the development of the Pathfinder pipeline and the expansion of its produced-water system, Western Midstream plans to invest between $400 million and $450 million over the next 24 months. This investment includes constructing the Pathfinder pipeline, developing new regional produced-water gathering facilities and export terminals with an incremental capacity of approximately 280,000 barrels per day, and adding nine new saltwater disposal facilities in eastern Loving County with a disposal capacity of 220,000 barrels per day. These infrastructure projects are expected to be operational by January 1, 2027, enabling Western Midstream to efficiently manage growing produced-water volumes and support continued growth in the Delaware Basin.

What Is Western Midstream’s 2025 Financial Outlook?

Western Midstream’s 2025 financial guidance reflects expectations of continued earnings growth, disciplined capital investment, and increasing free cash flow generation. The company projects an Adjusted EBITDA range of $2.35 billion to $2.55 billion, representing a five percent increase at the midpoint from 2024. Capital expenditures are projected to be between $625 million and $775 million, reflecting the costs associated with the construction of the Pathfinder pipeline, the expansion of produced-water gathering and disposal facilities, and the completion of the North Loving plant in the Delaware Basin. The company also expects to make additional investments in gathering and compression infrastructure to support anticipated drilling activity in the Powder River Basin.

Free cash flow is expected to range between $1.275 billion and $1.475 billion, an increase of approximately four percent at the midpoint. In line with its capital return strategy, Western Midstream intends to recommend a base distribution increase of $0.035 per unit, bringing it to $0.910 per unit, or $3.64 per unit on an annualized basis. This represents a 13 percent increase compared to the total base distributions paid in 2024. The company is targeting mid-to-low single-digit annual percentage growth in distributions moving forward, with the potential for additional increases linked to large-scale acquisitions or expansion projects.

How Is Western Midstream Adjusting Its Capital Allocation Strategy?

Western Midstream has announced a shift in its capital allocation strategy, prioritizing organic growth projects and bolt-on acquisitions to drive sustainable long-term returns. As part of this strategy, the company has decided to discontinue its Enhanced Distribution concept, choosing instead to focus on gradual, steady distribution increases supported by free cash flow growth and high-return investment opportunities.

Kristen Shults, Senior Vice President and Chief Financial Officer, emphasized that the decision to retire the Enhanced Distribution program aligns with Western Midstream’s commitment to financial discipline and long-term value creation. By allocating capital toward infrastructure expansion and high-return investment opportunities, the company aims to maintain its investment-grade balance sheet while maximizing shareholder value.

What Does the Future Hold for Western Midstream?

The Pathfinder pipeline and the expansion of Western Midstream’s produced-water infrastructure represent a significant milestone in the company’s ongoing efforts to strengthen its Delaware Basin operations. With a reinforced contractual relationship with Occidental, a strong financial outlook, and a disciplined capital allocation approach, Western Midstream appears well-positioned for sustained growth in the midstream sector.

As demand for midstream services continues to rise, the company’s robust free cash flow profile and commitment to strategic infrastructure investments will likely enable it to capitalize on new growth opportunities while maintaining stable and predictable cash returns for investors. With its focus on efficiency, sustainability, and long-term partnership-driven growth, Western Midstream is set to play a crucial role in shaping the future of midstream infrastructure in the Delaware Basin and beyond.