We see investor worries about energy dividends as well overblown. Accordingly, we’re adding Western Midstream Partners LP (WES) to the High Yield Energy List, explains Elliott Gue, editor of Energy and Income Advisor.
We’ve been generally wary of Western since Occidental Petroleum Corp. (OXY) acquired the general partner interest with its purchase of Anadarko Petroleum. That deal is now working out increasingly well for Occidental, which has a strong position in some of the world’s most valuable oil reserves. But at the time (2020), the purchase saddled the company with a massive debt load while commodity prices were slumping. And as a result, management has had to prioritize debt reduction, to the detriment of output.
Western’s primary business is providing services to Occidental. So, we’ve generally favored other midstream companies as carrying less risk with greater upside. As it’s turned out, Occidental has been a supportive GP and major customer for Western, even as it’s squeezed out costs and sold assets elsewhere in the organization. And now two things have changed that could charge up the midstream company’s growth.
First, Occidental is re-emphasizing oil and gas production. The big development is this month’s definitive agreement to sell its OxyChem business to Berkshire Hathaway Inc. (BRK.B) for $9.7 billion in cash.
The second game-changing development is Western’s acquisition of Aris Water Solutions, a deal that establishes the company as “one of the largest three-stream midstream, flow-assurance providers in the Delaware Basin.” Access to low-cost, reliable water supplies for hydraulic fracturing is increasingly critical in these generally arid regions. And the company will be a major service provider for Occidental as well as others.
Recommended Action: Buy WES.
