Building a midstream company in the midst of a pandemic
Most companies boast about cultivating a positive work environment. But after spending just a few minutes around employees at Western Midstream, you’ll realize that enjoying work is an important part of what they do.
As the President, CEO, and acting CFO of Western Midstream – a company known by their ticker symbol of WES – Michael Ure emphasizes the importance of having fun no matter the circumstances.
“We have a decent amount of fun with each other,” he said with a smile. “It’s such an important part of working at WES that we made promoting a positive work environment one of our six core values.”
Ure took the reins of the midstream company in August of 2019. He first joined Western Midstream through Occidental – commonly referred to as Oxy – after the closing of Oxy’s acquisition of Anadarko. Ure took a somewhat indirect path to his current role. After moving from Utah to Chicago for graduate school, he began his career in investment banking, which took him from New York to Houston to London and then back to Houston, where he then stepped into the corporate world.
Standing alone to begin 2020
Western Midstream began operations in 2008 as a midstream master limited partnership created by Anadarko Petroleum, an exploration and production company. Occidental later became the largest unitholder of WES through its acquisition of Anadarko in August of 2019. In only a few months, Occidental and Western Midstream worked together and executed governance documents that supported both companies’ desire to separate WES from Occidental.
Western Midstream, an oil and gas midstream company, supports several upstream producers like Occidental. With midstream assets located in the Rocky Mountains, North-central Pennsylvania, Texas, and New Mexico, Western Midstream is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural-gas liquids, and crude oil; and gathering and disposing of produced water for its customers.
“We transport volumes for upstream producers through our gathering and processing infrastructure and charge a fee related to our services,” Ure explained.
“Having fee-based revenue ensures we’re not directly exposed to commodity prices for almost the entirety of our portfolio. Providing exceptional customer service is critical to our success, and you’ll see us continue to sharpen that focus this year and beyond.”
From zero to 1,600 staff members in one year
Prior to the acquisition of Anadarko by Occidental, WES actually had zero employees. Despite generating over $2.5 billion in total revenues in 2019 and claiming a market cap of over $8.5 billion at the end of 2019, all personnel working on Western Midstream assets were employed by Anadarko, later Occidental.
A good portion of individuals working on WES assets juggled responsibilities from the midstream and upstream sides of the business. For example, an accountant was doing work for both Anadarko and WES.
“We undertook a strategy that we believed would find significant efficiencies if you establish a stand-alone structure where the exclusive focus of all employees was on midstream itself,” Ure said.
With faith that fully separating their operations from Oxy would inure to the benefit of WES and its stakeholders, WES entered into a series of contractual negotiations with Occidental that resulted in the employees focusing exclusively on the success of Western Midstream and its customers. Oxy’s continuous support and the diligent work of the new WES employees ensured a smooth transition.
As WES initiated this transformation, it released its 2020 earnings and capital expenditure guidance in February of last year. As we all may remember, everything in our world began to change almost immediately after that guidance was provided. This is when the plan started to get sticky, and the strategy, organization, and leadership all began to be tested.
2020: exceeding pre-COVID expectations
“March of 2020 hit us all in the face in a way that I can only liken to a Mike Tyson right hook,” Ure said. “As we set out on this strategy, we knew that it was going to be a significant challenge.”
Combining the pandemic with negotiations breaking down amongst OPEC+ producers (the Organization of the Petroleum Exporting Countries Plus), which resulted in negative commodity prices for the first time in history, Ure and the executive team knew there was significant potential for resulting damage to their business. In its first-quarter earnings call, Ure announced that WES expected to achieve $75 million of cost reductions and would cut capital expenditures by 45 percent. In spite of the new world everyone had suddenly found themselves in, the WES organization continued to believe that it could overcome. The leadership team asked its people to develop a culture uniquely its own, which included being more efficient with every dollar spent and finding innovative ways to run its business regardless of past processes. Through the collective efforts of the WES organization, the results began to be evident immediately.
To get there, WES leadership asked their teams to focus on cost savings through synergies and efficiencies. As a result, WES announced in November 2020 that it expected to lower its yearly operating
costs by another $100 million totaling to $175 million in cost reductions – most of these cost savings estimated to be sustainable into 2021 and beyond – while also reducing its capital budget by over $500 million.
“At the end of the third quarter, we projected ending the year with higher EBITDA than the guidance range we had provided in February of 2020,” Ure said.
“Think about that. Despite the pandemic, challenged commodity environment, transferring all employees into the organization, and separating our systems and processes into a standalone structure, we are expecting to outperform our pre-COVID expectations.”
As bleak as the situation seemed at times, this serves as a powerful reminder of the knack successful companies have for turning obstacles into opportunities.
“Everyone pulled together to make a sweet-tasting lemonade out of a big pile of rotten, sour lemons,” Ure said. “It’s something that’s been really exciting to be a part of.”
Building a work culture from home
With cost cutting measures in full force, Western Midstream was still focused on what most in the corporate world was not – building the basics of a stand-alone company from the ground up. Those few who worked on WES projects just before the new year were charged with creating new policies and procedures, standing up IT infrastructure, implementing HR processes, and most important of all, onboarding a staff of more than 1,000 employees and 600 contractors. More incredibly, nearly all of that work was done remotely.
Working away from the office during the pandemic also made creating core values and building a culture difficult. Using Microsoft Teams, new employees had to get acclimated to a new company with a new culture and learn how to work with their new team members and new leadership
– all while telecommuting and juggling health concerns and homeschooling duties. In June, the company brought employees back to its corporate offices on a limited basis, with half the company working remotely while the other half worked from the office. To this day, employees still rotate weeks to ensure a safe work experience through reduced capacity in the offices.
When the basics of establishing essential systems and onboarding personnel were complete, WES staff went to work on two corporate milestones that benefitted all stakeholders.
The company published its inaugural ESG Report in November 2020, providing investors insight into the company’s approach to Environmental, Social, and Governance issues and performance in these areas.
The ESG Report, found at www. midstreamsustainability.com, highlights its safety and environmental performance and forward-looking design of its facilities. Western Midstream designed and built its facilities to centralize midstream operations so that its producers could reduce their environmental footprint by removing equipment at the well pad. The leadership team decided to release the report in the company’s first year to demonstrate its commitment to ESG issues to investors and communities where it operates. Ure emphasized the enormous undertaking this was for his staff, considering the company had no stand-alone ESG data and no social investment programs at the beginning of the year.
Another milestone accomplishment in its first year was introducing the Community Betterment Task Force. Designed as a vessel for the company’s broad social efforts, this task force aims to make their communities better as a whole through volunteers and donations. WES established focus groups for each operational area comprised of local leaders to determine the priorities for community involvement at the local level.
What differentiates Western Midstream in its community outreach is how it backs its employees’ volunteerism. WES donates $40 for each hour an employee volunteers with an eligible non-profit organization, up to $800 per year, and WES matches 50 percent of employee contributions to eligible nonprofit organizations, up to $1,000 annually.
This program promotes Servant Leadership, or putting others in front of yourself, which is just one of six core values the company established in its first few months as a stand-alone company. Others include Empowerment, Customer Focus, Belief in Each Other, Integrity, and as mentioned earlier, a Positive Work Environment.
“What we’ve wanted to instill with our incredible employee base is not only are we going to achieve our financial results, but we strive to leave a lasting legacy – from an environmental and a social perspective at the grassroots level,” Ure said.
The added work to establish core values, release an ESG report, install a social investment program, and emphasize a strong safety philosophy, known as LiveSAFE, all have had a profound impact on advancing a culture so early on in the company’s stand-alone existence.
“It’s important to let our communities and investors know what our corporate identity is and what WES stands for,” said Mike DeHerrera, VP of Rockies Operations. “Reaching each of these milestones has gone a long way to form a company culture that our employees believe is truly making WES a great place to work.”
Looking for a bright future past a pandemic
In 2021 and beyond, Western Midstream has a golden opportunity to continue establishing a culture of success.
Just after its one-year anniversary of becoming a stand-alone company, the WES unit price had outperformed its peer group in the Alerian MLP index, and a majority of investor analysts who research the company have “buy” ratings on the WES unit price as of January 2021. These two metrics speak volumes about the company and how they’ve approached the uncertainty that permeates throughout the country. Fortunately, for both customers and investors, Ure and his new dedicated staff have already proven their ability to outperform expectations.
“We’re really passionate about this, and we’re so proud of what our people have been able to do – from our balance sheet and operational efficiency to building a strong culture in such a short amount of time,” Ure said. “It creates such an enormous amount of hope for our company to have encountered such a gargantuan challenge and delivered the results we have.”
About Western Midstream Partners, LP (NYSE: WES)
Formed to acquire, own, develop and operate midstream energy assets, Western Midstream Partners, LP is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural gas liquids, and crude oil; and gathering and disposing of produced water for its customers. Its headquarters in The Woodlands, TX can be reached at 832636-1009. Visit www.westernmidstream.com for more info.