2025 WES K-1 Guide: What the Aris Merger Means for Your Basis

Western Midstream Partners LP (NYSE: WES) is a midstream MLP that gathers, processes, compresses, treats, and transports natural gas, NGLs, and produced water. WES was originally formed by Anadarko Petroleum as Western Gas Partners, and operated under the WES and WGP tickers for years before the entities were simplified.

When Occidental Petroleum acquired Anadarko in 2019, WES came along as part of the deal. Today, Occidental is the majority owner and general partner of WES, making OXY both the primary customer and controlling entity. WES's throughput volumes depend heavily on OXY's production decisions in the Permian and DJ Basins.

In early 2026, WES renegotiated Delaware Basin contracts with Occidental and ConocoPhillips, receiving $610M in WES units from Occidental in exchange for simplified fee structures. This is relevant context for understanding OXY's ongoing relationship with WES and the unit count changes that may affect per-unit allocations on future K-1s.

On October 15, 2025, WES completed its acquisition of Aris Water Solutions, issuing approximately 26.6 million new common units and paying $415M in cash. This means thousands of former ARIS shareholders now hold WES units — and are receiving a K-1 for the first time.

This is the angle no other guide covers: "I held ARIS and now I have WES units — what do I do at tax time?"

Current distribution: $0.930 per unit per quarter, or $3.72/unit annualized (declared February 2026 for Q1 2026 — a 2.2% increase over Q4 2025's $0.910/quarter).

ROC weighting: WES distributions have historically been 70–85% return of capital — verify against your actual K-1. This means most of the cash you receive is not immediately taxable. Instead, it reduces your cost basis dollar-for-dollar under IRC §733. The remaining portion (allocated income on your K-1) partially offsets the erosion, but the net effect is steady basis decline.

Enter data from your WES K-1 to calculate your adjusted basis for one year. Run this for each year you've held WES to see cumulative erosion.

WES owns billions in depreciable gathering systems, processing plants, compression facilities, and pipeline infrastructure. Every year, the depreciation on these assets flows through to your K-1 as deductions that reduce your taxable income. This is part of why your K-1 may show a loss or near-zero income despite receiving significant cash distributions.

The catch: When you sell your WES units, all of that cumulative depreciation is "recaptured" under IRC §751. The recaptured amount is recharacterized as ordinary income — taxed at your marginal rate, up to 37%. This happens regardless of whether you have an overall gain or loss on the position.

What this means in practice: If you sell WES after holding for 5+ years, a meaningful portion of your total gain will be §751 ordinary income (reported on Form 4797), with the remainder treated as capital gain (reported on Form 8949). For positions held 5+ years, expect 30–50% of your gain to be recharacterized as ordinary income. The exact §751 amount appears on the Sales Schedule in your final K-1 package.

WES's geographic footprint creates state filing considerations. Your K-1 state schedule allocates income to each state where WES does business.

Practical approach: Most WES investors with positions under 500 units will file in their home state plus 0–2 additional states. The cost of filing extra state returns ($40–50 each in tax software, $100+ through a CPA) often exceeds the tax owed for small allocations. Focus on states with allocations above $500–1,000.

• Confusing WES with OXY: Occidental Petroleum (OXY) is a C-corporation that issues a 1099-DIV. WES is a partnership that issues a K-1. They are separate entities with completely different tax reporting. Owning OXY stock does not generate a K-1. Owning WES units does.
• Using broker basis when selling: Your 1099-B shows your original purchase price. The IRS expects your K-1-adjusted basis. You must override on Form 8949 using code B in column (f) — indicating the broker's reported basis is incorrect — with your corrected basis in columns (e) and (g). → Calculate your real WES basis free
• Not checking Form 8937 if you acquired WES through the Aris merger: Your WES cost basis is not your ARIS purchase price. The merger exchange ratio determines your initial WES basis. Using the wrong starting basis means every subsequent year's adjustment is wrong too. Form 8937 on WES's investor relations page has the calculation.
• Not tracking basis from the first year: WES distributions erode your basis every single year. Ignoring this for 5–10 years creates a compounding error that's painful to reconstruct. Start with your very first K-1. → K-1 Basis Tracker tracks this automatically
• Ignoring state filing obligations: Colorado has no de minimis threshold. If your K-1 allocates even a small amount of income to Colorado, you technically owe a nonresident return. Check for composite return availability before filing individually.