Good afternoon, and welcome to the Western Midstream Partners third quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kristen Shults, Vice President, Investor Relations and Communications. Please go ahead.
Thank you. I'm glad you could join us today for Western Midstream's third quarter 2019 conference call. I'd like to remind you that today's call, the accompanying slide deck, and last night's earnings release contain important disclosures regarding forward-looking statements and non-GAAP reconciliations. Please see the WES 10-K and our other public filings for a description of the factors that could cause actual results to differ materially from what we discuss today. Those materials are all posted on our website at www.westernmidstream.com. I'd now like to turn the call over to our CEO, Michael Ure.
Thank you, Kristen, and good afternoon, everyone. On the call with me today are Mike Pearl, our Chief Financial Officer, Craig Collins, our Chief Operating Officer, and Jaime Casas, our former Chief Financial Officer. Since becoming CEO in August, I've had the pleasure of meeting many of the talented individuals at WES in both our field and corporate offices. I truly am motivated by the passion they have for their work and their desire to see the company thrive. These individuals are the reason why WES has grown adjusted EBITDA from less than $100 million at IPO to current year midpoint guidance of $1.7 billion. I'm privileged to be a part of this team and look forward to working alongside such committed and dedicated workforce. Since early August, a premier management team has been assembled at WES.
This includes Mike and Craig joining me on the call today, as well as Chuck Griffie, our Senior Vice President of Operations and Engineering, Bob Bourne, our Chief Commercial Officer, and Catherine Green, our Chief Accounting Officer. Each of these individuals has decades of experience in the oil and gas sector and within their respective areas of expertise. Mike and Craig previously served on the Wes management team, Mike, as the CFO at the time of Western Gas Partners IPO and Craig as COO as recently as 2018. Chuck has over 18 years of operations and engineering experience, the majority of which has been spent with Anadarko. Catherine has served in a variety of leadership roles within Anadarko accounting over the past 18 years.
We've also appointed additional vice presidents to provide leadership in key areas. All of these individuals bring decades of experience to WES in their respective fields, with many of these appointments coming from legacy Anadarko and WES, which ensures the preservation of institutional knowledge and the streamlined transition of WES into its next phase. Please visit our website for further details on these key leaders. I truly am excited about the assembled team and look forward to continued success that WES has enjoyed since its IPO. WES's expansive asset portfolio is focused in the Delaware and DJ basins, which are, in my opinion, the premier onshore basins in the U.S. In the Delaware alone, we have dedications for approximately 850,000 acres.
Additionally, more than 92% of our natural gas volumes and 100% of our crude and water throughput are supported by fee-based contracts that are insulated from direct commodity price exposure. More impressive is our average contract life of approximately 10 years, with cost of service contracts and minimum volume commitments. I strongly believe that WES is positioned for long-term growth and success. With the amazing individual talent and an experienced leadership team in place, I have no doubt that WES will continue to excel. We're excited about the completion of the acquisition of Anadarko by Oxy. Oxy is a world-class oil and gas company with a best-in-class U.S. onshore portfolio that is complemented by Oxy's proven operational and technical excellence. We look forward to continuing a long-term, meaningful relationship with Oxy, a relationship that is mutually beneficial to both companies. There are three focus areas for WES.
First, we must optimize our existing assets in place today while maintaining the health and safety of our employees, contractors, and the communities in which we operate. This means maximizing the operability of our assets and realizing cost and capital savings. We are working to improve efficiencies between our commercial, engineering, and operations groups to provide our customers with best-in-class service. To realize these efficiencies, we are taking significant steps to reorganize WES as a business unit within Oxy. We believe this reorganization will enhance employee focus, which in turn will empower employees to generate ideas for providing improved customer service, establish better accountability, and allow WES to better align its compensation incentives with its own performance. We've been working through the reorganization process for the last few months, and we're excited with the results we've seen and the feedback that we have received.
Second, we are confident that we can continue to grow WES's business with the support of employees and our sponsor, Oxy. We look forward to building on existing relationships and will remain well-positioned to support Oxy's development plans in the Delaware and DJ basins. Oxy recognizes the tremendous value that WES provides and has expressed its support to drive long-term value for both companies. Finally, we are focused on growing our third-party business. Since our appointments, Craig and I have met with multiple customers to share our vision for WES and to convey the importance of their existing and prospective new business. Our efforts to grow the third-party business are supported by a renewed emphasis on ensuring that we have the necessary capabilities to serve all our customers across the basins in which we operate.
Through our expertise, innovative designs, and efficient capital deployment, we are focused on delivering improved service to all our customers. I would now like to turn the call over to Mike Pearl, our CFO, to discuss our third-quarter financial results.
Thanks, Michael. Yesterday afternoon, we reported quarterly results with adjusted EBITDA of $410 million and distributable cash flow of $304 million, with a coverage ratio of 1.08. These results were impacted adversely by approximately $15 million related to since-resolved downstream constraints that temporarily impacted our Rockies assets. Our operation and maintenance expense for the quarter increased by approximately $28 million on a sequential quarter basis. This increase primarily relates to higher seasonal electricity costs in the Delaware Basin, additional field-level compensation true-ups, and additional surface use fees in West Texas related to our expanding water business. While this expense is greater than prior quarters, it nevertheless is in line with our expectations and indicative of our expected O&M run rate for the fourth quarter of 2019. I will now turn the call over to Craig to discuss third-quarter operations.
Thanks, Mike. Operationally, gas throughput decreased by approximately 80 million cubic feet per day, quarter-on-quarter. This decrease primarily was driven by lower throughput from our DJ Basin Complex as a result of downstream constraints that were resolved mid-quarter, and that should not impact future operations. We saw quarter-on-quarter increased throughput at our West Texas Complex, where we benefited from additional compression, leading to third-party and affiliate volume growth. By the end of the year, we expect to add over 140 million cubic feet per day of compression capacity, which will ramp up throughput at our West Texas Gas Processing Complex. Turning to liquids, our quarter-on-quarter throughput increased by approximately 85,000 barrels per day. This growth was driven by a 13% increase from our DBM water assets, where we brought three additional saltwater disposal facilities online, and a 14% increase from our DJ Basin crude assets.
As expected, our per-barrel liquids gross margin returned to a normalized level of $1.81. As our water business continues to grow, we expect our overall liquid margin to track lower. However, compared to crude, the water business generates higher returns, notwithstanding the associated lower per-barrel margins. Also during the quarter, Cactus II commenced operations and is expected to ramp up heading into early 2020. This investment is a great example of our continued focus on our portfolio of equity investments, which complement our in-basin gathering and processing assets, providing cash flow diversification and economic upside further down the value chain. We will continue to fund strategic equity investments that complement our existing asset portfolio as these opportunities arise, either through our sponsor, Oxy, or through our own organic business development efforts. I also would like to comment on our Latham Gas Processing Plant in the DJ Basin.
Plant dry-out operations will begin within the next week, and we expect to process gas in the next two weeks. We expect to see improved margins as we transition from bypassing to processing these volumes. Additionally, we expect the second Latham train to come online early next year. I will now hand the call back over to Michael for concluding remarks.
Thanks, Craig. I'd like to spend a few minutes discussing our current guidance and next year's outlook. As it relates to 2019, we expect capital to be near the low end of our guided range. With respect to 2020, we will release our official guidance early next year. However, there are a few items that we are comfortable sharing today by way of a preliminary outlook. First, we expect significant year-over-year adjusted EBITDA growth of approximately 10%. This is a result of our continued focus on our Delaware operations, including six additional saltwater disposal facilities, an additional 30,000 barrels per day train at the North Loving Rotus, further gathering system build-out related to Oxy's development plans in the Delaware and DJ Basins, and a full year of distributions from our Cactus II equity investment.
We also expect continued economic benefit from increased throughput in the DJ Basin once Latham I and II ramp up during 2019 and 2020. For 2020, we expect a decrease in total capital between 20%-30% compared to the $1.35 billion midpoint of our 2019 guidance. Also, maintenance capital as a percentage of adjusted EBITDA is expected to be proportionally in line with 2019. Finally, the extensive build-out of our Delaware Basin infrastructure over the past three years yields 2020 capital forecast benefits resulting from economies of scale that are available as a result of our prior investments and the associated efficiency of this infrastructure build-out. For the past 27 quarters, WES has increased its distribution. We intend and expect to continue quarterly distribution growth, taking into account our goals of lowering leverage and increasing distribution coverage.
Before I conclude my prepared remarks, I would like to thank employees and contractors for their continued focus on safety, dedicated service, and contributions to the overall success of WES. I also would like to thank our investors for their continued interest in WES. I look forward to working with all of you and to the promising future that we will build together. With that, I would like to open up the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Shneur Gershuni of UBS. Please go ahead.
Hi, good afternoon. I was wondering if we can start with the CapEx outlook for 2020. When I think about the total dollar, like the big dollar amount itself, I was hoping you can sort of reconcile something for me. The message from Western Gas, and I recognize it's now Oxy is the GP versus Anadarko, but the message was high 2017, high 2018 CapEx was spent to oversize the system for the surge of Anadarko volumes. When I sort of think about where your 2020 guidance is today, it's not that different from where the expectation was for 2019 was originally when it was presented late last year. It kind of feels like the volumes have been effectively pushed out a year.
When I sort of square all that together, I kind of think that the CapEx should be down significantly more than it is, and I was just wondering if you can sort of reconcile that for us, and where the spend is actually coming from.
Hey, Shneur. Thank you for the question. This is Michael. As referenced in the prepared remarks, we're still in the midst of an important reorganization effort. We're excited about the talent that we've been able to assemble. We think that this initiative is going to yield some significant results related to capital efficiency and returns. The preliminary 2020 outlook, I would say, does not provide to fully capture all of those benefits of that reorganization, and therefore, we think that the estimates that we put out there are both achievable and conservative. Some of the difference is a little bit related to the work that we've been doing with Oxy and their development plans and some of the locational differences in terms of that full-scale development relative to what was expected at the time of Anadarko's ownership.
Okay. I guess that makes some sense. Just following on, the strategy that you've presented about having dedicated employees, can you walk us through how that's going to work with the omnibus agreement on a go-forward basis? As you add an employee, do you reduce the agreement? Just some color on how that's actually going to work out.
Yeah. It is also a good question. As it relates to how it's going to function as we sit today, all this is just a reorganization that is still under the umbrella of Oxy. What we've engaged in, however, is a more focused employee base so that they can focus on West more exclusively than was the case before. It isn't necessarily about increasing the percentage of employees who spend time on West, it is more increasing the focus of each of those individual employees, and the organization with which they are established.
Okay. One final question. There were a lot of headlines coming out of the Oxy call earlier today about potentially selling Western Gas. Can you talk to Oxy's commitment to Western Gas? Are we putting dedicated employees in so that it can be sold? What really is Oxy's commitment at this stage right now, and how should we think about it?
Yeah. We can't speak to Oxy's plans as it relates to Western Midstream. We'd refer those questions to Oxy. However, I would make the comment that the reorganization effort that we've undertaken is intended to yield benefits regardless of whatever the organizational or the ownership structure is from an Oxy perspective. We think that by and through this reorganization, by the increased focus of the employee base, it will yield better accountability, better results, and drive efficiencies through the system.
Okay, perfect. Thank you very much. I'll yield the call to other questions.
Our next question today comes from Jeremy Tonet of JPMorgan. Please go ahead.
Hi, good afternoon. Just wanted to start off with the 2020 preliminary EBITDA guidance as you guys laid out there. I was wondering if you could share kind of any building blocks or drivers that go into that as we try to model it out ourselves. Is it fair to think kind of growth rates that Oxy lays out in the DJ, in the Delaware could be a good proxy for what you guys could see, or what adjustments should we make there? Any help you could give us?
As it relates to the EBITDA, again, most of the growth is being driven in the Delaware. These forecasts have been worked together with Oxy, incorporating the forecasts and expected development plans that Oxy has in both the DJ and the Delaware Basin. I would think of them as lockstep to a large extent. Obviously, Oxy's our largest customer, not our only customer. As it relates to those forecasted throughput volumes, it has been worked in lockstep with Oxy and their planned development of the DJ and the Delaware.
Okay. Maybe, I guess, flipping to the cost of service side, kind of given how much capital that you guys have spent historically in these areas, should we be expecting kind of an uptick in the tariff, if not in 2020 or 2021? Could you just kind of refresh us on how we should think about truing up your investment there?
Yeah, Jeremy, this is Craig. We review those cost of service rates annually, and we've baked into our early numbers for 2020 what we expect those rates will look like based on our capital assumptions as well as the volume profiles that go into those models.
Okay. Just the last one from me, I guess. Given kind of the strain in the balance sheet right now, or running with higher leverage than you had before, and also coverage being a bit tighter, I'm wondering how you think about distribution growth at this point. Obviously, with the units yielding in double digits, it doesn't seem like there's a big reward for current distribution or even growing it. At what point would you guys kind of bring in that distribution growth to kind of bolster the balance sheet a bit more here?
We have provided guidance as it relates to 2019 distribution growth. We still expect to be in the 5%-6% range on a year-on-year basis. Post-2019, we expect to continue to have sequential growth in the distribution, we do not have a current target growth rate, trying to also take into consideration a goal around higher coverage as well as to reduce leverage.
Great. That's it for me. Thank you.
Our next question today comes from Gabe Moreen of Mizuho. Please go ahead.
Hi, good afternoon. I was wondering if you can talk a little bit more about the third-party efforts that you're pursuing, which basins see the most opportunity. You've had a little bit of success in the DJ so far. As far as also whether those third-party efforts are also meant to be additive to, let's say, Oxy's commitments from a minimum volume commitment side, or are you also looking for other deals like you had in the DJ where maybe you get some third-party business to, I guess, supplant some of Oxy's commitments to West?
Thanks for the question, Gabe. I think that's something that we're very focused on is growing our third-party platform, and frankly, all of our assets, but with a particular focus in the DJ and Delaware, where we see the most upstream activity going on in the near future. As we look at the DJ, for example, we've got a significant amount of third-party volume that we've had under contract for some time, and we continue to grow that. I think if you look at operationally the way we operate our assets up there and the lower system pressures that we are able to demonstrate relative to our peers, it puts us in a very good position to attract that incremental third-party business.
I think we take that same approach down in the Delaware, where we've got an extensive asset footprint across some of the very best rock in the basin, we think. As we look at opportunities to bring incremental volumes on, both from the gas gathering and processing side, as well as into the water gathering and disposal assets, we see a number of opportunities. We've taken steps over the last few months to strengthen and add additional resources to our commercial development team. As Michael noted in the opening remarks, we spent a lot of time with our customers since we came on board in August and are very committed to that platform going forward.
Great. Then maybe I was going to follow up on the DJ. To what extent Cheyenne Connector has proven a constraint or not to anyone's volumes out there, maybe the outlook over the next couple of quarters until that comes online?
Yeah, I think if we go back to when Cheyenne Connector was originally sanctioned, I think the overall volume growth out of the DJ has not increased at the pace that everyone may have thought. We see the residue constraints out of the DJ as being limited to not particularly a factor over the next several quarters. The timing of that project will sync up very well with the incremental processing capacity that's going to come online.
Right. Then just one last one, just overall, just wanted to confirm there's no plans at this point in time for equity issuance as far as funding CapEx for this year or next.
Hi, thanks. Yeah, this is Mike. Yeah, at this time, there's no plans to issue equity.
Great. Thanks, everyone.
Our next question today comes from Sharon Louie of Wells Fargo. Please go ahead.
Hi, good afternoon. On the Oxy call, management had indicated, I guess, some efforts to improve Western Midstream's operations, mainly reducing some downtime. Can you maybe talk about that and maybe quantify the potential benefit?
Thanks, Sharon, for the question. I would say that historically, our downtime in each of our assets has been comparable with our peers. If we look at the DJ, for example, where we've had an established position, our downtime has been very low, and it's really an exemplary asset within our portfolio, and that's what we strive for across the board. We monitor on a weekly basis, monitor and track our downtime, and we continue to drive towards differential performance in our operations through asset optimization and enhanced reliability. This will be an area of focus for us going forward, both in the Delaware Basin as well as in all of our assets. Because we feel like as we're able to differentially perform relative to our peers, it will result in incremental business for us, both with our sponsor as well as with third parties.
We're also very energized by the joint effort in this regard. In as much as downtime is reduced across the board, regardless of where that might come from, obviously that results in incremental throughput through the system. It's beneficial to all parties. We're actually really excited about the joint effort to try and minimize any operational challenges that there may be throughout the system.
Okay, great. Just to clarify, I guess the outlook for 2020 in terms of throughput, is the expectation that West volumes will mirror that similar to Oxy, meaning like a 5% growth, I guess, in volumes?
I would just make a couple comments, and I would refer you back to Oxy for any other specifics. A corporate volume profile for Oxy does not necessarily translate into a throughput profile for West. Obviously, it is relevant where that capital is concentrated and therefore whether or not it impacts West on a go-forward basis. The EBITDA projections or the preliminary outlook that we provided yesterday afternoon are inclusive of the expectations of the development plans of Oxy in both Delaware and the DJ basins.
Okay. I guess in terms of your growth CapEx for 2020, is there a rough split between the different regions that you can provide?
This is just a preliminary outlook. We have briefed the board with regards to this, but it is not board-approved. We have provided the outlook, really at the request of a lot of our investors to get an update on operations post the transaction with Anadarko and Oxy. We're not yet at liberty to be able to give specific comments as it relates to that capital forecast. Obviously once it becomes board-approved, we'll be providing additional detail.
Okay. I guess the last question, I think in your Q, you provided some disclosures on your exposure to Sanchez. I think it was like 10% of your gas volumes. Is there a way that you would be able to quantify, I guess, the dollar amount?
Not specifically. We can't quantify that dollar amount. We don't at all believe it to be material even in a worst-case scenario. As we sit today, the volumes are still flowing. For the gathering agreements, Sanchez prepays those fees. There's been no issue with respect to receiving those prepayments, and at this point, we don't have a reasonable estimate as to something that would be material from a downside type scenario perspective.
Okay, great. Thank you.
Our next question today comes from Alvaro Escoto of RBC Capital Markets. Please go ahead.
Hey, good afternoon. Going back to third-party business, can you maybe provide a little more detail on what you're doing specifically to attract more of this business? I know it's early, but I think you said you've maybe talked to some potential customers. What's been the feedback? In terms of your 2020 guidance, is it correct to assume that this preliminary EBITDA guidance does not include any incremental third parties, and that if you do sign, there would be upside to that?
Yeah. I'll start with your second question first. In our 2020 outlook, we don't have any uncontracted business incorporated into our numbers. We see a significant amount of opportunities both in the DJ and Delaware primarily where we have bolt-on opportunities for incremental third-party business. Our strategy around that, it's almost really twofold. First, we're working closely with our existing customers and looking at ways we can either extend or increase the dedications and commitments from them. We're also looking at customers, for example, that we're providing gas gathering and processing services to. We're talking to them about handling their produced water. We're working with our existing portfolio of customers, which includes some of the top names in the Delaware Basin. We're also approaching other parties that we have not done business with in the Delaware.
Those range from small independents all the way up to some of the larger names that people are very familiar with.
Do you think that just based on discussions, and again, I know it's early, but do you think that you could secure some additional third-party business that could drive upside to your 2020 numbers?
I think we have best-in-class assets in the Delaware and the DJ that cover a large acreage positions, and alongside those assets are several producers, and we're working with many of them today to look at ways to enhance their growth targets in 2020 by providing them near-term midstream services. We do see incremental opportunity in 2020 from those opportunities that frankly would be very capital-efficient given the extensive incumbent position that we have from an infrastructure standpoint.
Great, thanks. Then in the past, Western Midstream used to call out the Powder River Basin as sort of the third leg of the stool when thinking about growth. Is PRB still a longer-term growth opportunity for WES?
We do view it as a longer-term growth opportunity. If you listen to the Oxy call, it was referenced that within two to three years, they expect the Powder River Basin to be competitive from a capital standpoint. We absolutely have it on our radar, and we look and are actively looking at ways in which we can participate in the development that may occur out there.
Got it. Just the last one for me. Just remind me, did Anadarko or WES have an option to buy into the Cheyenne Connector?
Yes. WES had an option to buy into that project. It really fit into the historical strategy that Anadarko and WES employed, which was to make a downstream commitment and to get an option to participate from an equity standpoint. I think as that project has materialized, we've come to the conclusion that it was neither strategic for us, nor did it meet the investment criteria that we wanted it to meet in order for us to participate in that. We declined to participate.
Got it. Thanks. That's all I got. That's all I have.
Our next question today comes from Derrick Walker of Bank of America. Please go ahead.
Hey, good afternoon, guys. Most of my questions have been answered. Maybe just to follow up on a third-party questions from Gabe and Alvaro. Can you just talk a little bit about how you're seeing how those margins are coming to fruition, whether it's on a cost of service MVCs or maybe just traditional fee-based contracts, how that compares to legacy Anadarko contracts, just given the current competitive environment?
Yeah. This is Craig again. I'll speak to that. I would say, the legacy Anadarko contracts were contracted in a different market, were contracted with a mind towards following a development program that was intended to delineate a large acreage position. That was really the genesis behind those contracts and the structures behind them. What we're seeing today in the market, particularly with third parties is focused acreage positions that need takeaway capacity, either on the gas side or on the produced water side. We're positioning ourselves to be able to provide those services. I think as everyone understands, the basins that we operate in are fairly competitive basins. We feel like given our asset footprint, we can compete very favorably based on incremental capital required to win this business.
We're very focused on leveraging our existing investments in order to pick up accretive contracts relative to what we have today.
Okay, great. Thanks. That's it for me.
Our next question comes from Daniel Lungo of Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question. Just real quick, going back to the balance sheet. When I run the 2020 CapEx and EBITDA numbers, it looks like you're going to be a touch above that four and a half times leverage target that the agencies lay out for IG for gathering and processing names. Obviously, it's likely the agencies don't make a move until there's more clarity with Oxy. Could you just talk to how your conversations have been going with the agencies around the rating?
Yeah. Thanks for the question. This is Mike. The conversations have been very consistent with what you've laid out in terms of the goalposts for what they're looking for in terms of investment-grade. I think, first and foremost, Western is absolutely committed to maintaining its investment-grade status. We will work to defend that rating in any way that we can. I think the conversations with the agencies, not surprisingly, have focused more on how organically we can work to reduce that leverage ratio. Earlier on the call, we discussed that the third-party assumptions in our 2020 plan are based on currently contracted third-party volumes. Any incremental third-party business that we're able to bring into the portfolio would be incremental to what we've preliminarily guided to yesterday.
In addition to that, I think standing Western up as an independent business unit within Occidental will provide us plenty of opportunity to realize operational efficiencies that, again, will help us bolster the EBITDA such that organically we're bringing down that leverage ratio over time.
EBITDA and capital ideally
Yeah
That we can drive some efficiencies through both of those preliminary outlook estimates.
Yeah. Finally, we are looking at portfolio optimization as we move forward to the next chapter of WES, so to speak. I think we have several levers to pull from to get that ratio back in line with what the rating agencies expect and quite frankly, what we expect of ourselves.
Great. That's really helpful. Next question you may not be able to answer, but what's been your thought process around terming out that roughly $3 billion of pre-payable debt that you have outstanding? Obviously, I know it's sensitive, so just whatever you can say on the subject.
No problem. We have roughly, call it 15 months to opportunistically access the debt capital markets to get some favorable pricing in and around refinancing the term loan. I think as the months sort of progress here, and there's more clarity with respect to Occidental and Occidental's sponsorship of Western, I think that we'll start to see improvements in terms of some of the spreads that we can avail ourselves of in the debt capital markets as we move forward. We are keenly looking at our opportunities to refinance the term loan, and we will strike, so to speak, when we deem it opportunistic.
Great. That's really helpful. Thanks a lot.
Our next question today comes from Sunil Sibal of Seaport Global Securities. Please go ahead.
Hi. Good afternoon, guys, and thanks for all the clarity on the call. Most of my questions have been hit, but I just wanted to go back to one point which was raised on the Oxy call. Seems like Oxy indicated that they were looking at ways to deconsolidate the WES debt. I was wondering if you have any views on that, especially when you talk to the rating agencies, if there is any sensitivity around that point.
Thanks for the question. I'll go ahead and respond first and then turn it to Mike if he has any additional comments on the rating agencies. Again, we can't speak to Oxy's plans as it relates to West. That said, we expect to have a very meaningful and long-term relationship with Oxy. We expect Oxy to have an economic interest and alignment with West for the foreseeable future. From a West standpoint, as we look at it, regardless of whatever the ownership structure is, we're going to be partners with Oxy related to their development plans for the foreseeable future. There's going to be alignment there. We're going to continue to have strong interaction with them. We feel very positively with regards to that relationship, regardless of whatever the ownership structure might be.
Mike, any comment as it relates to or anything to add on the rating agency side?
Yeah. I think we've run the company from a rating agency perspective on a standalone basis from the beginning of time. I don't think any of that is going to change. I think Occidental stated on its call today that it plans to maintain a significant ownership interest in West for the foreseeable future, which we believe to be important. That's going to help us both in terms of what the rating agencies are willing to ascribe in terms of value to sponsor support. We think it's very helpful.
At the same time, we like the idea of Occidental maintaining a significant equity interest such that as a very large unitholder, they are aligned with us in terms of supporting us such that we maintain our investment-grade rating because we think that rating is critical to execution of our underlying business which obviously is very important to Occidental as it paces its own onshore growth over the coming years.
Okay. Got it. Just last clarification from me. I think in the past, the leverage ratios that have been talked about are within 3x-4x range. Obviously, 2020 may be a little bit above that. I was wondering, is there any change to that thought process? If not, when do you think you could get to the middle of that range?
Well, in terms of 2020, obviously, the goal is to get as close to 4 as we can, and then below that as we move into 2021, and hopefully back to what I'll call pre-simplification type ratios by exiting 2021.
Okay. Got it. Thanks, guys. That's all I had.
Our next question today comes from David Amoss of Heikkinen Energy. Please go ahead.
Hey. Good afternoon, guys. Just wanted to see if you could provide a little bit more color on your portfolio optimization comments. Maybe just the criteria that when you look at your portfolio would make something core or non-core to you going forward.
Yeah. Unfortunately, as you probably would guess, I can't provide a lot of clarity in terms of what we're thinking at this point in time. It's an ongoing and continuous analysis that we will continue to undertake. It is absolutely something that we will look at as we move forward and look to reduce the leverage ratio going forward.
Okay. Just a quick follow-up, and you may not be able to answer this either, but we've always viewed the Delaware and the DJ as two very core assets to you. Has that changed at all or could that change? Would you look at potentially selling one of those two assets?
Those are absolutely very core to us. Definitely has not changed.
Thank you.
Our next question is a follow-up from Jeremy Tonet of JP Morgan. Please go ahead.
Hi. Thanks for letting me back on. Just with regards to maintaining the investment-grade rating and the different levers you have at your disposal, just wondering if you could talk a bit more about the appetite to issue hybrid securities to minimize dilution at this point with how the equity is yielding, or any thoughts on the distribution, whether it would ever make sense to pick or reduce or anything else, I guess, as far as the different levers you have, how you would rank those.
Yeah. I guess at this point in time, any and all options are on the table, but to get too specific at this point in time would be probably premature, but we are familiar with absolutely everything that you cited, and we are analyzing all of the options available to us. Again, I think first and foremost, we'll look organically to see what we can achieve, both in terms of attracting additional third-party business and the operational improvements that without a doubt should come as we continue to sync up with Occidental and stand West up as an independent business unit within Occidental.
I'll stop there. Thanks for taking my question.
Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Michael Ure, CEO, for any closing remarks.
Thank you everyone for joining the call. We really appreciate your attention. Thanks again to all the dedicated employees for their hard work both in the past and in the future. Everyone, please stay safe. Thank you all.
Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect.