Western Midstream generated $518.4 million of adjusted EBITDA during the third quarter. That was more than 26% above last year’s level and the highest in its history. The company also generated $339.2 million in free cash flow and $198.3 million of excess cash after paying its 12.3%-yielding distribution, which it reduced by 50% earlier this year. Its strong showing in the quarter has it on track to achieve the high end of its initial adjusted EBITDA guidance range of $1.875 billion to $1.975 billion.
The company has also made excellent progress in shoring up its balance sheet. It closed the sale of its interest in a gathering system in October and entered an option agreement to sell a treating facility next year for an up-front payment of $27 million. Meanwhile, it repurchased $29 million of its senior notes at a discounted price of $27.2 million. Because of these and other moves, it has already met its 2021 leverage target to get debt-to-EBITDA below 4.0 times.
Western Midstream also unveiled its initial guidance for 2021, projecting that adjusted EBITDA will be between $1.825 billion and $1.925 billion. Meanwhile, it expects to invest only $275 million to $375 million on expansion projects, which would be about $100 million below this year’s midpoint. When combined with its improving balance sheet, that forecast is giving Western Midstream the confidence to return more cash to investors by launching a $250 million unit repurchase program.
Western Midstream’s 2020 results have come in much better than expected despite all the oil market turmoil this year. Because of that and its expense reduction, it has quickly reduced debt, which has increased its financial flexibility heading into 2021. That’s allowing it to take advantage of the nearly 50% decline in its unit price by repurchasing some of those beaten-down units.