Q4 2019 Earnings Call
Have agreed to settlement terms with all of the Marquis customers that participated in the pipelines recent rate cases. Our business performance resulted in higher adjusted ebitda wage DCF for both the fourth quarter and full-year when compared to 2018. We achieved the upper end of our 2019 Outlook ranges for both measures and our continued focus on Capital efficiency resulted in expansion Capital expenditures below our 2019 Outlook range with our continued growth and distributable cash flow since 2015. We increased the cash return to common unit holders in 2019 by raising the rate of our quarterly distribution by approximately 4% while still maintaining healthy distribution coverage.
although we had
A strong year performance in 2019. I want to acknowledge the industry backdrop. We Face commodity prices and US rig counts have decreased in recent months and Ford, has two significant challenges in twenty-twenty with these headwinds. I want to highlight why I believe enable is well-positioned for the current market environment Financial enable a strong with an investment-grade balance sheet substantial distribution coverage and well over 1 billion of liquidity as of the end of 2019. We have a diversified business mix and asset footprint are gathering and processing business spans, four different basins and our customers include high-caliber operators, and some of the best areas of the scoop Painesville and back in place these operators continue to deploy significant capital in these plays while demonstrating improved results at lower costs money.
our transportation and
Business is often overlooked but it contributed over 30% of our total gross margin in 2019, which doesn't include the additional contribution from our 50% investment in the sesh Interstate pipeline. This business provides a strong base of firm fee-based cash flows and we plan to grow this business with our mass and Gulf run pipeline projects.
We have two strong utility sponsors in Centerpoint and OG&E and both sponsors are significant holders of common units with combined ownership of almost 80% off enable is focused on costs and we demonstrated this by making difficult decisions and achieving significant cost Savings in a challenging business environment following the fall of commodity prices in late 2014. All employees are rewarded through our short-term incentive programs to reduce costs and improve Returns on invested capital and enables management team as well aligned with our common unit holders with all management Equity compensation tied to our common units.
the next slide
Highlights our continued execution over the past four years since 2016. Our natural gas gathered volumes have grown 62% are transported volumes have grown 27% Our adjusted ebitda has grown 31% and our distribution coverage ratio improved from approximately 1.2 times in 2016 to almost dead one point four times in 2019 with our strong business performance and a focus on Capital discipline enabled was able to self-fund nearly 80% of our 2019 Capital program after distributions turning to the next slide. We continue to balance our business growth with a focus on operating efficiency and cost discipline is a grown gross. Margin over the last four years while significantly improving our o&m and G&A expenses as a percentage of gross. Margin as I mentioned earlier our businesses generate significant fears.
Cash flows and we expect overnight.
Fifty percent of our cash flows in 2020 to be either fee-based or hedged. Our strong financial position is highlighted by our year-end debt-to-ebitda level of approximately 3.8 which was below our Target and favorable when compared to many of our peers.
The next slide provides a brief update on our golf run pipeline project file certificate applications with the ferc by the end of the first quarter 2020 seeking authorization for the project. The project scope filed in the application would provide approximately 1.7 BCF per day of capacity which would both accommodate golden passes 1.1 be after day commitment and allow for additional capacity subscriptions that may develop from ongoing discussions at an estimated total cost for the filed scope of approximately 640 million. The project will be appropriately sized to meet contracted customer capacity commitments and we estimate a capital cost of approximately five hundred million to meet golden passes off at 1.1 BCF per day commitment.
turning to our
Quarter 2019 commercial highlights producers remain active across the Naples Gathering footprint with 27 rigs currently drilling Wells expected to be connected to enable scattering system's down market share in the Anadarko Basin remains strong with 47% of all active rigs in the scoop and stack plays drilling Wells expected to be connected to enables Gathering systems or rig counts in the Anadarko Basin declined over the year. We still saw record annual volumes and 2019 highlighting a growing disconnect between rig activity and volumes in the base wage that was featured in a recent gas daily article in the third quarter of 2019. Operator saw average cycle time improvements of 17% in the Basin when compared to a year ago. We are partnered with some of the best operators with significant acreage positions in the core areas of the Basin that continue to allocate significant capital and deliver favourable results dead.
Who directed Road?
remain strong and in the fourth quarter enables crude oil and condensate gathered volumes reached 150,000 barrels per day, which is primarily driven by continued growth in a dark o bacin
in our transportation and storage business enable contracted or extended over 1.2 million dekatherms per day of Transportation capacity during fourth quarter 2019, including contacts associated with the MRT rate cases that are subject to approval EGT has seen continued increases in activity on its line CP segment and in the fourth quarter of a GT contracted or extended over 235,000 dekatherms per day a firm transportation service online CP.
As I previously mentioned MRT has agreed to rate case settlement terms with all of Em are teased firm capacity customers that participated in the pipelines recent rate cases with ninety percent of third-party capacity now extended into 20-24 MRT expects ferc to rule on the proposed settlements in the first half of 2020 and the pipelines new birth rates and newly negotiated rate agreements will become effective upon approval upon approval of the settlements MRT will make any necessary refunds to customers and recognizes find any amounts that have been reserved but not refunded for periods prior to the effective date of the ferc approval assuming the settlements are approved in 2020 MRT expects revenues for 2020 to be higher than the revenues MRT recognized in 2018 on the old rates and volumes that were unaffected by capacity. Turn Max.
as I close this
Section. I just want to reiterate how pleased I am with what enable accomplished in 2019 even with the challenges of the current market environment. We expect 2020 to be another strong execution with that. I will now turn the call over to John to further discuss our fourth-quarter and full-year 2019 operational and financial results. Thank you rod and good morning everyone. I will now cover a few of our key operational and financial metrics for the quarter and year as always you can find a more detailed and comprehensive overview of our financial and operational results in our fourth quarter earnings release and in our 10-K both of which were released earlier this morning.
Turning to the operational performance overview slide customer activity and well results in the Anadarko and Architects basins continue to drive volume growth in our gathering and processing segment. As you can see, we have a 2% increase in natural gas gathered volumes in a 5% increase in natural gas processed volumes in 2019 compared to full year 2018.
the substance
to increase in our crude oil and condensate gathered volumes for full-year 2019 compared to the prior-year was primarily driven by our Anadarko Basin crude and condensate Gathering system acquisition as well as a 24% increase in crude oil gathered volumes in the Williston Basin as a result of continue drilling activity by x t o m
in our transportation and storage segment an eleven percent increase in are transported volumes over the prior-year was a result of newly contracted capacity including volumes m e g T's case project and e o i t s Muskogee project.
Moving to our financial results on the next slide or adjusted ebitda increased for both the fourth quarter and full-year 2019 when compared to 2018. The higher wage was driven by higher gross margin after adjusting for non-cash items which Fork U 419 compared to Q4 18 was driven by increased fee-based crude oil condensate water and natural gas Gathering business in increased system management activities for full-year 2019 compared to full year 2018 wage increased gross margin was driven by increased fee-based Gathering business and an increase in realized gains on natural gas condensate and NGL derivatives.
For both the fourth quarter and full-year 2019 when compared to 2018 the increase in gross margin was partially offset by higher than him and G&A primarily due to increase in payroll costs and outside Services cost associated with pipeline safety and storage Integrity work as well as a loss on retirement of assets.
Distributable cash flow increased by 3% year-over-year and 2% quarter-over-quarter. These increases were primarily driven by higher adjusted ebitda partially offset by higher adjusted interest expense maintenance Capital also increased year-over-year as a result of increased pipeline safety in storage Integrity work.
Our net income measures decreased for both fourth-quarter and full-year 2019 when compared to 2018 the decrease for each. Was primarily related to a non-cash Goodwill impairment charge of $86 associated with the Anadarko Basin reporting unit in the Gathering and processing segment. The impairment was driven by a decrease in forecast cash flows as a result of lower forward commodity prices and reduced producer activity in an increase in the Partnerships weighted average cost of capital.
Net income was also impacted by higher and expenses higher depreciation and amortization expense in the higher interest expense for both the fourth quarter and full year of 2019.
For fourth quarter 2019 enables gross margin included a two million dollar gain on derivative activity compared to a $49 gain on derivative activity for the fourth quarter of 2018 resulting in a decrease in net income of $47.
After considering the distributions declared enabled generated a distribution coverage of one point, two three times for the fourth quarter and an impressive one point three eight times for the full year of 2019.
For 2020 we are affirming the ranges for the financial Outlook that we have previously provided to include a distribution coverage ratio of approximately 1.3 time and leverage of approximately four times that said in order for an able to perform at or above the midpoint of the range for net income adjusted ebitda CS commodity prices and producer activity would need to improve from current levels.
as a
Was my remarks I want to reiterate the points Rod made at the beginning of the call enable is financially strong with the diverse high quality asset base. We acknowledge the challenges of the current environment and will remain focused on cost discipline and efficient Capital deployment. I will now turn the call back over to Rod. Thanks John turning to the next slide. I want to share with you some of our key Focus areas for the year enabled takes pride in its strong financial position as we have highlighted in our 2020 Outlook. We plan to generate substantial cash flow in twenty-twenty while maintaining our investment-grade credit metrics.
Our large integrated system provides significant optimization opportunities and we continue to identify new opportunities for cost savings and revenue enhancements. We remain committed to commercials excellence and we see additional high-value opportunities across our footprint our pursuit of new commercial projects remain balanced by our commitment to Capital discipline and not continue to be laser focused on right-sizing our expansion Capital program for customer activity. Finally enable is a strong company that is built for the long term and not have developed a plan to expand our reporting on important sustainability issues by the end of the year.
Glutes my remarks and we will now open the call up for your questions. Yes. Thank you. We will now begin the question-and-answer session to ask a question. You may press six than one on your touchtone phone. If you're using speakerphone, please pick up your handset before pressing the keys to enjoy your question, please press * then two years time. We'll pause momentarily to assemble the roster. And the first question comes from Gabe Marine with Mizzou ho
Hi, good morning. Everyone. I just had a question on Trends I think for Kia and I'm came in a bit above what we were expecting and I think on the car on your comment you referenced outside Services. We took over the four Q run-rate throwing em as sort of a one-time pickup or or how should we think about that within the context of 2020 guidance? Yeah. I think that you should think of that is kind of a one-time pick up. We had some you know, some brake fix that we had we had to put into into the fourth quarter.
God and and
Ramen you can you talk about sort of the basins and we're some receiving some potential lower activity some of the commercial maybe objectives are trying to achieve are there any combinations you're looking at with third parties or rationalizations of capacity between yourselves and others?
Sure, what we we do that all the time again will be more focused on twenty-twenty around that ways that we can potentially avoid capital outlay by either off loads or other efficiency methods to you know, to use some some facilities that are already in place whether they're ours or or someone else.
Okay, and then maybe last one for me is I noticed Williston crude oil volumes were down pretty significantly sequentially 40/3 Q if I'm seeing that right. Can you speak to that issue? What's embedded in the 2020 guidance then also I notice he didn't put your volume Outlook in the slides like you did last quarter. Is there any areas where you just want to shift that guidance volume-wise based on sort of the current the current Outlook and what you're seeing? Yeah, no Break Free question, you know first pulling some of the volume information out is consistent with what we've done in years past. We were again focused on reaffirming the financial guidance. And so that was that was the primary rationale there as you ask questions around the block and we we continue to see some deferral of activity up there related to some infrastructure issue.
So we're seeing a depth count toward a bill in that area. And so I think that that may push volumes off to the back half of 20 into early 21. Give. We're not giving you any guidance past twenty, but, you know, we're seeing some some activity getting, you know, pushed down a little bit some of that's consistent with what we were thinking and November and some of its exact due to some some some constraints by our producer up there not infrastructure not infrastructure on our side, but other other issue got it. Great. Thank you.
Thank you. And once again, please press * then 1 if you would like to ask a question.
And the next question comes from Jeremy Tony with JPMorgan. Good morning. Just wanted to pick up on the guidance and I think in your prepared remarks. She talked about commodity prices need to improve to hit the midpoint of the guide was just wondering if you could help help us think through that a bit more as far as the different levels of sensitivity you have as a strip is laid out in front of us as it is. Do you still anticipate being in the bottom half of the guide or kind of what parameters should we think about to make sure the bottom, you know, the bottom end of the guide is still kind of a floor-level any any details that you could provide there would be helpful in but again, we we give a rating guidance. So we're again we think that will bring in that that range as we sit here today clearly as God made in made the comments and news remarks that we need to see some help from commodity prices and
from activity to be you know at or above that midpoint, so that would point you towards the
For the back half of the range as we currently see it here. We're clearly seeing some activity impacts on the gas side from the coronavirus that's acting I think natural gas. Not not just across our footprint. But in in other areas, I would just say to getting your guidance together in November. They were expecting a little more activity than we saw at the tail end of December. We saw some wells drilled but not completed those completions are getting pushed off until into this year. So again, we're setting up for we feel still a constructive back half of 2020 and off and construction out past our current guidance. John. I don't know whether you want to add anything there. Yeah. Hey Jeremy, good morning. It's John just a couple of things to add. So first on your dead.
Question explicitly around where where we're at with the stress, you know, and would that still and US within Guidance the way that we look at things with our with our current assumptions Off the Strip would not take us out of guidance out of out of the guidance range and we did provide some sensitivities for 2020 that that were based off on the assumption that we had previously laid out for sensitivities to give you some ability to calibrate from from where we were to to Thursday. We maybe now and that's in the I think it's on page sixteen in the deck from this morning.
Got it. Thanks in maybe just coming at this from a slightly different direction here. It seems like the rig count maybe declined a little bit more quarter-over-quarter than you were expecting at this point long as you look forward now and still contemplating being in the bottom half the guidance, you know, what type of you know rig count. Do you see kind of going forward that would that would land you there? Do you still see kind of lines across the air or do you expect it to stabilize at some point any color? You can provide there I would say it was as I mentioned in my commentary, you can't just focus on on ring count. We're saying, you know improved completion methods. And again, it's also highly dependent on on specifically what areas that produce your drill. In fact, we see them testing testing other areas clearly in the Anadarko. They're still doing we still drilling or focused on drilling for oil in the Haynesville. It's it's largely or d as in dog.
So again, I don't want to focus you just on on ring count because we are seeing improved efficiencies increase cycle times.
around our our footprint
leave it there, but as I mentioned, you know, we are seeing in a couple of other areas increase in. Count not not a not a I would say material increase off again. It just it just shows that there's some completions getting pushed off until later in the year.
Got it. Thanks and maybe just want to follow up with the pyramid as well. And it seemed like the Anadarko was one of the places that you guys, you know, have have a good rest seem to have some good activity behind your system there and was wondering if you could just give us a little bit more detail on on what drove the impairment or if there's something different about this asset versus the rest of your footprint. Yeah. Sure Jeremy, you know, there's a month was a couple of things there I'd say, you know one is we test our Goodwill every year in generally that happens in the fourth quarter. And if you just think about you know, commodity Thursday is from you know, call it fourth quarter of last year or two where they ended up fourth quarter of this year was a pretty Market change across the board to include in jails. And when you think about some of the other factors that we mentioned again, we we saw the shift in rigged activity from the stack to the scoop and again, you know some of the some of the customer
is there
Where they where they removed from Riggs, you know that that had some impact there and then you know, lastly look I think we're we're the market multiples our valuation. They have direct implications to the cost of capital if it's considered in that analysis. We're not afforded the ability to look at it on a on a temporary basis as of a point in time. So the accounting literature works and so it it really is the Confluence of those three factors coming together at what we what we believe is is a low point for for each of those three things come together again around the commodity prices current levels of drug activity and increased cost of capital. That's that's been been inherent in the office Partnerships units.
Got it. And just last one if I could with regards to kind of Target leverage. They're just wondering if there was any consideration to kind of bring that that number lower may be closer to Something in you know closer to home or three just giving kind of where Market sentiment is and just kind of the concern in the market bringing, you know, targeting a bit of a lower level there in whatever makes sense to kind of, you know, reduce the distribution to to achieve that ends or you know anything that you could talk about on that side be helpful. Yeah. I know I'll I'll address that one first and foremost as I said my closing remarks off the key priority for us in twenty-twenty is is leverage. We've always prided ourselves on a strong balance sheet. So we need to continue to work with our our our leverage levels specifically in in times. Like these will be again keep focus on costs and keep Focus off.
balance sheet
And and right now that that is that is kind of our two of our top priorities.
Got it. That's it for me. Thank you.
Thank you. And the next question comes from Kenya with wolf research.
Thanks for taking my question. I had a question just related to the the MVC update that you gave in the 10K. It looked like if I was just reading it right that the make whole payment, I guess in a roast number look like it was a little bit higher in 2019 than it was in 2018 was just kind of wondering how how you think about if that was the right reading and kind of how do you think about that into 2028?
Yeah, so now it's good morning. This is John. You know, I'd say on the I think you're referring to the architects in particular page where what we did see in 2019 was the roll off of one set of our of our contracts out of em out of out of nineteen into twenty-twenty. As Ron mentioned. We have seen some deferrals of well completion activities page was an area where we saw that we're seeing some shifting out of that of that production curve into future. So from from our standpoint, you know again as we roll out of twenty-twenty entirely The Architects will be completely will be completely satisfied at least from a from a timestamp birth.
and will be
Operating more in line there and collecting revenues on a on a volume driven basis. And so from our standpoint, we we continue to see and expect you know growth over time in the in the Haynesville area based on conversations from our producers. It just has been shipped it out a little bit from from what we had anticipated in the fourth quarter got it. And then on on Gulf run, you know, it sounds like the the certificates going to have a sizing of the pipe and I think it was off yesterday. I think that in the past that have talked about being, you know, potentially getting as large as as 2 plus is there a sense that just as the original sizing of the certificate could still potentially know over the long term if if there's good momentum on Contracting the future that that it could be kind of upsized to a larger, you know capacity by you no compression or something like that. Yes. Yeah. Yep.
You know as we sit here.
Right now is as we've discussed, uh, you know golden passes signed up for 1.1, you know, BCF we've continued to look for opportunities to upsize off of 11.1. The one seven is consistent with our pre biling that we made with the far. And so we're making our formal application consistent with what we've pre-filed. We will continue to look at opportunities to grow above are currently contracted 1.1 BCF, you know at a point in time. We will need to make a decision when I get in the queue on on pipe orders and we'll have to you know, put commercial have to you know, put some of their pizzas down as it relates to you know, subscribing new Transportation capacity they're dead, but I think you should think about it as we're at one one and and we're finding it one seven. There's always the opportunity to go if you see the activity higher would have to age.
and the filing but
Right. Now those were sort of the levels that were working working Within.
Great. Thanks so much.
Thank you, and this concludes our question-and-answer session. I would like to turn the conference back over to mr. Sailor for any closing remarks. Well, thank you very much for participating in the call today at your questions and commentary and closing. I want to recognize our employees for their hard work dedication and continued focus on safety. Thank you all for your interested in able and have a good have a safe day.
Thank you. The conference is concluded. Thank you for attending today's presentation disconnect your lines.