Q1 2020 Earnings Call

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The enable midstream partners' first quarter 2020 concept called webcast.

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After today's presentation.

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To enable.

Senior director of Investor Relations Mr. My peacefully that's to be usually you maybe answer.

Thank you good morning, everyone presenting on this morning's call her rod sailor, our president and CEO, John laws, our Chief financial officer to achieve social distancing and limit travel we only have a small group joining the call in the room today, but we also have other members of the management team on the phone to answer your questions.

Earlier. This morning, we issued a earnings press release, the father form 10-Q, with the FCC earnings press release form 10-Q filing in the presentation that accompanies this call. We're all available in the Investor Relations section of our website. We will also be posting a replay of today's call to the site.

Today's discussion will include forward looking statements within the meaning of the securities laws actual results could differ materially from our projections in a discussion of factors that could cause actual results to differ from projections can be found interesting to see filings will also be referencing non-GAAP financial measures on todays call, which we reconciled to the nearest GAAP measures in the appendix of today's presentation.

We invite you to review the disclaimers in this presentation, both forward looking statements and non-GAAP financial measures.

With that well get started and I will turn the call over to Rod sailor. Thanks, Matt Good morning, and thank you for joining US you can see on slide for the key topics. We plan to cover this morning.

As always enable is committed to protecting the health and safety over employees customers and communities, where we live and work well maintaining continuity in providing vital energy infrastructure services.

Second we plan to spend time today, covering the current market environment and its impact on enable the significant demand reductions as result of cold at night team as well as the supply impacts from actions taken by Russia, and Saudi Arabia have resulted in a significant drop in crude prices, which was impacted.

Companies across the energy value chain, the U.S. rig count has dropped almost 50% since early March and we're starting to see production curtailed in place across the U.S. to include certain areas of our footprint.

During times of market volatility, we believe enable benefits from it strong balance sheet significant scale in key operating basins and our overall diversified asset portfolio of gathering and processing systems interconnected with natural gas transportation and storage systems.

Third we have quickly responded to this new market environment by reducing our capital expenditures, an operating costs and we're committed to further action as needed to make sure enable remained strong in 2020 and beyond.

Fourth despite the challenging business environment, we continue to execute on our strategic objectives, and we have several key project and contracting updates to share today finally, well market has changed quickly. We know what is important to provide an updated view for 2020, John we'll share our updated.

Outlook for the year at the end of the call.

The next slide highlights our response to cobot 19, as the Corona virus began to spread in the U.S., we quickly implemented our business continuity program, allowing us to continue operating our assets and executing on our business objectives.

Following the local state and federal guidelines and recommendations from help organizations most of our employees have been working remotely and we have implemented social distancing practices for the field and other functions unable to work remotely.

I am pleased to report that business operations are running smoothly and there have been no cobot 19 related impacts to systems operation or critical business functions, a testament to the hard work and dedication of our employees.

To promote physical and mental wellbeing, we're offering multiple support resources to our employees and their families and we recently committed to make donations to hunger relief organizations in communities across our footprint.

Turning to the next slide as.

That's the implications of economic downturn and dramatic modesty price declines became apparent.

Quickly announced actions designed to position the company well for the challenges of 2020.

These actions included a 50% reduction in our distribution as well a significant cost and capital reductions, which in total should result in approximately $450 million of additional cash flow on an annualized basis, which can be deployed back into the business to fund capital expenditures and reduce debt.

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From a capital standpoint, we're limiting our capital expenditures to contracted long term transportation and storage projects UN contracted capital efficient gathering and processing projects.

We're also looking for cost reduction opportunities across the business and have already identified significant savings, including idling of certain facilities deferral of non critical projects lower materials and supplies costs as a result of reduced activity and lower equipment rental costs.

As we turn back underutilized real compressor units and replace real units with unused equity units.

Enable is now well positioned to fully fund its business in 2020, while reducing total debt levels.

And we're committed to taking further actions as needed should challenging market conditions persist.

As we look at producer activity for the balance of the year. We expect most new well connects will be focused in the haynesville shale on our Ark La Tex system with more limited activity in the Anadarko and Williston Basin.

Given significant declines in the demand for crude and the associated reduction in crude prices, we anticipate some amount of near term production curtailment in the Anadarko and Boston basins, and we have updated our outlook to reflect curtailments through June.

Turning to the next slide enable continues to benefit from a diversified asset portfolio.

Our transportation and storage segment is anchored by from contracts with high quality customers, providing stability during volatile market environments.

With a more constructive outlook for natural gas prices further out the curve, we're seeing increased producer interest in drilling and completing wells in leaner gas plays, particularly in the Anadarko basin and as I. Just mentioned, we expect producers will continue to drill and complete wells in the Haynesville shale.

In the Ark La Tex basin.

Over the long term enable is well positioned for both a producer operating cost and wellhead pricing perspective.

Based on recent third party research our gathering footprint includes plays with very competitive operating cost profiles.

We also offer unique market solutions to our producers and many of our producers whole downstream capacity commitments that facilitate moving production to premium markets.

The next slide highlights several key project and contract updates.

First we recently received FERC approval on Marty's rate case settlements. These settlements established rates for service on the MRT system that provide a return on marty's historical investments recovery of the pipelines ongoing operating costs and rates certainty for customers.

We recognized a onetime 17 billion dollar revenue benefit in 2020 related to 2019 billings and we estimate a 7 million dollar benefit on an ongoing basis.

Our Gulf run pipeline project is proceeding on schedule. We recently filed certificate applications with the FERC on February 28, and FERC will now conduct an environmental assessment of the project. The project scope filed in the application would provide approximately 1.7 Bcf per day.

Capacity, which could both accommodate Golden pass is 1.1 Bcf per 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 at capital cost of approximately 500 million to meet Golden passes current 1.1 Bcf per day commitment subject to FERC approval, we still anticipate placing the project into service in the.

Late 2022.

Our mass natural gas transportation project also remains on schedule for its anticipated second quarter 2021 startup the project Leverages enables existing infrastructure to provide access to emerging Gulf coast markets and growing southeast demand markets and is backed by a firm.

From fee based agreement.

On the contracting front EGD recently re contracted substantial capacity with its largest customer Centerpoint energy resources Corporation.

The contracted term forward the majority of the renewed capacity is nine years and the effective date of the new contracts will be April 1st 2021. We were also recently awarded a three year renewal for approximately 150000 Dekatherms per day from a utility on the ERP system and.

We recently contracted 100000 Dekatherms per day of capacity for two years, starting in 2021 on MGTS line. CP. Finally, we continue to evaluate asset optimization opportunities and we recently closed on the sale of E. GTS undivided 112.

Interest in the best to know storage facility.

I will now turn the call over to John to discuss the first quarter results and our updated 2020 outlook.

Thank you Rod and good morning, everyone.

My remarks will cover our first quarter 2020 operational and financial results at a high level as well as an updated outlook for 2020.

As always you can find a more detailed and comprehensive overview of our financial and operational results in our first quarter earnings release and in our 10-Q, both of which were released earlier this morning.

Turning to the operational performance overview slide we saw a slight decrease in natural gas gathered volumes as a result of lower volumes in the Anadarko and arkoma basins offset by volume increases in the architects basin.

We saw an increase in crude and condensate gathered volumes driven by volume growth in the Anadarko net of lower gathered volumes in the Williston.

Finally, the slight decrease in transported volumes was primarily related to lower gathered volumes.

Turning to the financial results on the next slide our decline in net income was primarily driven by noncash impairments that we recognized in our gathering and processing segment during the quarter offset by revenue increases from Fercs approval of our MRT rate case settlements.

The slight decrease in adjusted EBITDA was driven by lower gross margin after adjusting for non cash items, including an adjustment related to the change in fair value of commodity derivatives. The increase in DCF for the quarter was driven by lower cash payments made pursuant to the partnership's long.

Term incentive plan and lower maintenance capital expenditures.

After considering the distributions declared enables distributable cash flow exceeded distributions declared by $142 million fully funding our $38 million of expansion capital expenditures for the quarter in providing additional cash flow to reduce debt.

I will now discuss our updated 2020 outlook on next slide.

Before I get into the details I want to recognize that we find ourselves in a very fluid environment. Accordingly, while we believe demand will return in prices will stabilize over time, we cannot know or predict when that may occur nor can we predict the full extent or duration of any customer.

Our volume curtailments.

The outlook shown on this slide reflects current market prices and our expectations for producer activity for the balance of the year, which have been informed by recent commercial dialogue with our key producers.

And as Rod mentioned, we expect to see some curtailments in the Anadarko in Williston basins as well as some new well wells connected to our systems, primarily in the architects basin.

In terms of production curtailments the outlook assumes that we will see approximately <unk> 0.6, tbtu per day of natural gas production and 70000 barrels per day of crude oil and condensate production curtailed in may.

And while most producers are not giving indications on curtailments beyond may our outlook assumes the curtailments extend through June at an approximate impact of $12 million for the month.

At our current distribution rate and considering the actions we announced in early April to increase retained cash flows we expect that distributable cash flow will exceed distributions by approximately $325 million at the midpoint of the outlook.

I will allow us to fully fund our anticipated expansion capital expenditures for the year, while reducing total debt levels.

As I close my remarks, I want to emphasize that even though we are facing near term challenges. Our assets have served customers for many decades through many different industry cycles, we're confident that the steps, we're taking position enable well for success, both now and in the future.

I'll now turn the call back over to Rod.

Thanks, John as we wrap up todays call I want to emphasize a few key points first and most importantly, we are committed to protecting the health and safety of employees customers and communities.

Second enable is built for the long term and we continue to benefit from significant scale diversified assets integrated systems unique market solutions and a strong base of firm demand driven transportation and storage contracts.

Third enable remains strong and the actions we announced in early April create significant financial flexibility and liquidity.

Finally enable will take the necessary actions to position the company for success in 2020 and beyond including continuing to scale expenses and capital to the business environment that concludes my remarks, and we will now open the call up for your questions.

Thank you Sir.

We'll now begin the question answer session.

Lastly, questioning and press Star then 100 tests on fall.

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At this how origins pause momentarily to assemble roster.

And the first question that will come from Jeremy Tonet update you Morgan. Please go ahead.

Hey, Good morning, guys. This is James on for Jeremy Appreciate you taking my questions.

Just starting with the the updated guidance I appreciate the color in terms of next few months, how you're seeing production play out.

Across your portfolio looking into the back half of the year in second half were kind of the moving pieces in terms of.

Your GMP segment.

For what can get you to maybe the high end versus the low end of the guide.

Yes, James as Ron I'll I'll start.

The answer and John our microcontroller.

And what yen to the extent they they need to.

I think as we think about it we said this in our commentary around the slides as we look at the back half of.

2028, we continue to see a very constructive.

Dry gas.

Environment setting up if you recall.

We saw a lot of activity in the stack area, which is the Gassier play.

As a producers focused on crude they move down into the scoop.

Our our system can handle activity be it in the school be it in the stack be it anywhere along the Anadarko basin.

So we do we do we do see some.

Opportunities for producers to be a little more active on drilling in.

Some of the Gassier windows of the Anadarko, if we continue to see a constructive gas environment.

On the crude side really it's going to be highly dependent on demand and the impacts on demand that that increased demand would have on price.

See I think more accrued directed drilling that's that's where we've seen the biggest pullback.

From producers of late.

Again stronger gas prices again, we expect continued to see producers continuing to follow their drilling plans.

In the Haynesville.

So I think the to some of the positives that we would.

We expect our could 0.2 would be around a stronger gas price.

What that would do.

For increased drilling in the gas year windows of the Anadarko and potentially others and the Ark La Tex Basin and remember one of the points, we really tried to emphasize again given the integrated nature of our system. The fact that many of our producers are gathering customers have transportation obligations our system.

We continue to work with them to find creative ways to get gas molecules to the best absolute best market available. So I think it need to see some of some of continued debt constructive gas environment and would need to see picked up and accrued demand.

Okay. Thanks.

Maybe just up just just before you leave us if John or Microwaving design now right. I think you said it well I think that just to think about it.

Building on Rob's comments and.

You know really at the end of the day waiting completion dry we still have some.

Some work going on in the area innovations, we got rigs running.

I think we've been a little conservative from completion standpoint for.

Balance of the year and so to see some of the condition and Rod as described.

We're all trying to work our way introduced current environment and understand how the demand will rebound and what that will mean for prices.

I think as an opportunity.

To see the well that is being drilled on that rig activity is going on now.

Being brought forward into India completion.

Great. Thanks.

Then just wanted to touch on the on the rating agencies and how conversations have been going them I assume they viewed the recent actions as a positive.

But just if there's any ready sensitivity that they put out for you I think S&P, but you guys on negative watch.

How conversations are evolving with them.

Theres any leverage target that you guys are trying to be by year end.

Yes, I think.

Question. So we've been in very regular dialogue with each of the three agencies shirt, certainly leading up to be announcement that we had on the.

First in April and thereafter.

Yes, I think the primary leverage.

Target that the agencies as well for us and.

It varies a little bit.

Generally that for a half times range is that to the extent, we're exceeding that on a sustained basis.

That that begins to be a point where.

We'll take a harder look look when we.

What we're entering into this crisis as we closed out.

Last year.

With a pretty strong balance sheet head.

Under four times.

Weve maintained that leverage level through the first quarter.

Roughly three Fivek 86 from a from an overall leverage level. So we feel like we're relatively well position.

The measures that we've taken.

Well on top of that just to add to that add to that strength as we continue to March through 2020.

All right up there thanks for taking my questions.

Thank you.

Next we have done and low if I may.

Of the among capital.

Good morning, and thank you for taking my questions. My first one is perhaps a rod in your prepared remarks, you talked about being prepared to.

Further actions to the extent that the situation there.

Are there any specific levers that you thinking about.

Potentially building in terms of further actions and wouldn't necessarily.

Makes you sort of person for the actions that here.

Yes, I appreciate the question I don't look I think I think you know.

The point to that comment is I think we took.

We took the right at appropriate actions at April to ensure you know strengthened the balance sheet and too.

I will give us ultimate financial flexibility and liquidity and all of those options are on the table going forward, depending on what we see or believe the future holds to us and I wouldn't read anything.

One above above the other but I just I just wanted to be sure that we made the point that we've got a lot of levers to pull we pulled some level and we'll continue to look at at pulling those are our additional levers as we think the business climate warrants.

That's helpful. Ron Thank you.

And those looking at the only now for the quarter was a little bit lighter than what we expected you identified when you announced the dividend cut.

A host of initiatives.

Cost saving measures and so for the think $35 million and on them for the benefit from.

70 million for next year with any of that accelerate into the quarter just wanted some clarity on that.

I think a little of it was because we've started taking some actions around.

Again.

So some of the actions that we're taking in the first quarter will carry on over into entered into next year.

No.

But yes, but I think we'll continue and I think we've got all up to $35 billion currently identified and well continue to address cost cutting as we go as we go through the year, we'll execute on the 35 million and would not surprise me. If we we saw a little bit more and again some of those cost reductions or activity.

Based and so again, depending on activity levels.

We could see some some of those go down we could see some of them go up with some of the discussions we're having around some of the dryer drier gas areas.

Oh, Thats, we call it I'll get back into queue. Thank you.

Next we have sooner just suneet of VBS.

Good morning visits I guess you guys are calling in for Shneur could you. Please provide more color continental's curtailments in the Anadarko, which wells could be impacted did they focus more on vintage wells any color would be helpful.

Yeah, I don't think it would be appropriate for us to talk about individual customers and curtailments, especially given the continental will be having I think the earnings call next next week and I'm sure. They will be outline what there what their plans are we've tried to point out that.

The level of curtailments that we've had on our system and clearly continental is a large part.

Of those curtailments, but I don't want to get into any specifics around that I don't think that would be appropriate for us.

And then what isn't even thinking about debt repurchases in the open market as it part of the strategy. This year to reduce debt has unable to repurchase and at that so far.

Yeah, We released our Q. This morning, our guidance, we don't have any any debt repurchases disclosed in there, but look I think what you.

Should investors should expect from enable is that.

We're going to be front footed on a number of different things and strategies and evaluating those opportunities in looking at how the debt may trade.

Yes, it could be an opportunity for us that we'll evaluate but we don't have anything specific to comment on there.

Thank you for taking my question.

You bet.

Again as a reminder, if you'd like to potentially in today's Jumei. Please press Star then one on the tests on so again that star one one to ask a question, let's move outs to not have Wolfe research.

Hi, good morning.

Two questions I think first is.

You mentioned the EBITDA impact of the June.

Assumption of Curtailments, I think was 12 or $16 million.

Is that is that a fair assumption to use it to the extent that we we see extension to this curtailments that again, a good sensitivity that we could use on a monthly basis for the balance of the year.

And the second question is just on Gulf Ron.

Is there kind of a date when you would need to kind of just decide on kind of the ultimate sizing of that project during the FERC process Im sure Theres, probably some implications on ordering pipe diameter weapon, just curious about kind of what the window as to look for additional supply are contracted volumes.

Yes.

On the curtailment question again, just just to be clear we did assume.

In our guidance, we assume that there would be curtailments in may and June again, most of the producers were talking to we're taking it sort of on a monthly basis and have indicated may and and very few have pointed to June but we wanted to we felt that was the appropriate time frame just given the constructive the curve.

Okay.

In the 12 billion dollar number was the number that we referenced for June you could expect that again those wells are are somewhat on decline so that that 12 number with would slowly decrease.

Over time should curtailments last past June.

We're end the filing process on.

On Gulf, Ron and so yes. There is a there is a there is a date depending on how that process plays out that we will ultimately need to make some decisions around.

Probably first and foremost the ultimate size. So we can we can start thinking about how we want to handle the pipe cost.

To date pipe costs has continued to come down since we announced that project and that's that's been favorable to us clearly there will likely be stomachs escalations and other costs. So.

Right now there we haven't set a firm date that we need to leading to say we're done.

It's it's a it's been an exercise with potential customers that we've had a lot of activity and then it it slowed to nothing and now we've seen at other pickup of activity.

Around potential interest in that project. So look our commercial team has done a phenomenal job around that project. They will continue to talk with potential us look subscribers of capacity right up until we feel that during the regular regulatory process, we need to we need to buy.

Idolize scope.

And move forward with.

With making some some purchases around the are making some expenditures related to that project.

Probably not as Chris Financers, you'd like but it is a it is an ongoing situation and we still have some ability to move our time around and still make all of our all of our regulatory and construction deadlines.

Great. Thanks very much.

Next we have Gabe moreen attainable.

Hey, good morning, everyone. Appreciate that things are highly uncertain at the moment, but can you maybe speak to.

Sort of the base volume declines, maybe you expecting or guidance sort of on our.

For Q4, Q basis or were one Q1 Q basis, and the Anadarko just curious some after curtailments.

Or hopefully have done with sooner rather than later, where you see the base volumes come at it ops and drilling.

Yes, Hey, good morning game, it's John.

Thanks for the question in.

Depreciation recognizing sort of the fluid things are at the moment.

You know I think as I mentioned, a little bit earlier at the outset as we're not real aggressive on.

Well connect and in the Anadarko this year and so.

And with that we've also not put out specific volume metric guidance.

Here, but I think it's probably fair.

Fair to say I think if you were looking at.

You know sort of an overall decline over the over the year probably in that.

You know tenish percent range it'd be a little bit stronger than that if you were looking at Q4 to Q4, but I'm going to stop short of giving a specific number just as the activity continues to evolve and we don't know exactly how things will matriculate.

Through the balance of the year and.

Looking year fluid.

Yeah, and I might just add that again when.

When crude crude price collapsed and producers start reacting we've seen.

We're only in sort of the third week of this exercise around most producers of shutting in production and we've seen.

From our customers you know some changes in the wells that they plan to shut in and so it is a very.

Dynamic environment around around that that does make it a little a little.

I think I think John said it well.

We've made our best assumptions in our our outlook based on the activity that that we think that we will we will that we have seen and we think that we will see but again I think it's up for efficient or can that continue to think about where best to find value between ongoing production.

They're drilling activities and what they want to shut in and clearly it's heavily weighted towards crude but theres a lot of gas with some of those shut ins and again, depending on the price construct we can we can see that that very I think it'll vary in may and.

Optimistic that will start to see.

See some of those wells coming on.

Hopefully sooner rather than later.

Thanks, John Thanks, Ron totally appreciate the uncertainty over the whole exercise just want to clarify Tom when you throughout the 10 percentage number was that Anadarko specific or sort of cross piece and kind of stab at the number.

No harm Marco.

That's not necessarily our expectations for some of the drier gas areas and that gets into a little bit of that.

The difficulty in getting units.

The numbers as well, we continue to be encouraged by and see activity.

Some of the rig activity converting into India completions this year.

Got it and then second question is in the past you've been kind of creative I think in terms of coming up with some projects and solutions around basins, where there has been.

Access processing capacity, you had mentioned earlier about cost saves on compressors I'm just curious whether.

In your own network of crop of plants in the Anadarko and even in conjunction with others with kind of solutions are being bandied about.

I think rationalizing some of that capacity just curious on your thoughts there.

Yeah, I look I think.

First thank you I do think we've been able to provide some some creative solutions to those things and I think we'll continue to look and look I think rationalizing processing capacity in and around our footprint as has been an exercise that we've continued.

To champion probably Havent had as much success with that.

Outside of Wildcat, where we were at a growing environment.

Our walk at project.

But we've talked about it in a in a constricting environment also in so.

Nothing nothing to announce there it is something that we continue to think about but think about ways to use better use our assets and frankly in areas, where we're seeing a lot lot more activity. We're we're trying to find creative ways to partner with with our with our peers and competitors to utilize utilized.

All the capacity that's out there so.

Got it thanks, Rob.

While this will conclude our question answer session I went out to turn the conference call back over to Mr. Sandler for closing remarks, Sir.

Oh, Thank you very much and then closing I want to recognize all of our employees for their hard work dedication and continued focus on safety. During this challenging time look thank everyone on the call for your interest in enable it and I Hope you all remain Satan safe and healthy please have a great day.

And we thank you start off into the rest of the management team for Tom also today.

The conference has now concluded again, we thank you all for attending today's presentation. At this time you may disconnect. Thank you.

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Wow.

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