Q1 2020 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand that thank you for your patience.

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Ladies and gentlemen, thank you, Chris standing by and welcome to the opposite Midstream Company first quarter 2020 earnings Conference call. At this time, all participants I know listen only mode.

So to speak of presentation, there will be a question and answer session.

Asking a question during the session you only need the press star one on your telephone. Please be advised that today's conference is being recorded if you're quite any but it's just been please press star zero I.

I would now like hand, the comp and see a speaker today catch a Cassidy director of Investor Relations. Please go ahead Sir.

Good afternoon.

And thank you for joining us on office midstream companies first quarter 2020 financial and operational results conference call.

We will begin the call with an overview by Altrus, Midstreams, CEO and president clay branches.

And then Rogers CFO, who will summarize our financial performance and outlook.

Our prepared remarks will be approximately 15 minutes inline with the remainder of the call a lot of for today.

Remarks during the call me also refer to the Altice midstream investor presentation, which can be found in our Investor Relations website, and altice midstream dot com forward slash investors.

On today's conference call, we may discuss certain non-GAAP financial measures.

Reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found any investor presentation posted yesterday on the Investor Relations website previously noted.

Finally, I'd like to remind everyone that todays discussions will contain forward looking estimates and assumptions based on our current views in reasonable expectations.

However, a number of factors could cause actual results to differ materially from what you discussed today.

The full disclaimers located with the Investor presentation on our website.

With that I'll turn the call over to clay.

Good afternoon, and thank you for joining us on our goal today will highlight key accomplishments during the first quarter provides an update on the operating environment, we're facing an offer an outlook for the year ahead.

First I'd like to thank the oldest team their commitment to operating safely and efficiently in light of the Corona virus Brendan.

Our team continues to operate with dedication and focus despite these new challenges.

Their safety as well as that of their families is our top concern. So we continue to monitor the situation closely and adjust our practices accordingly.

Because of 19 pandemic is presented in the unprecedented challenge for the global economy, and its put the supply and demand willing gas were out of balance than we've ever seen before.

The good news is it all this is well positioned to meet these headwinds we have no upcoming debt maturities. Our revolver extends through November 2023, and provides ample liquidity to meet our foreseeable investment needs and we expect to begin generating free cash flow upon the startup for Kidder Morgan's Permian Highway pipeline in.

Early 2021, it was point are ongoing capital requirements will be minimal.

Our priority is to maintain a strong liquidity position through this downturn and we're confident in our ability to do so.

Unlike many other midstream companies with single Basin GMP assets also says a portfolio of assets comprised of GMP in long haul pipes that provide a diversified cash flow Street.

Our interest span oil Ngls and natural gas and are supported by a mix of minimum volume commitments acreage dedications and walk up volumes.

These assets continue to perform well even in the current low commodity price environment and we're pleased with their overall performance.

I'll start by discussing highlights from our four JV pipeline projects the Gulf Coast Express natural gas pipeline in which allows us and 16% is supported by minimum volume commitments, which provides more certainty around floor rates than acreage dedications Kinder Morgan is highlighted you see acts as a major contributor.

To its higher volumes in the first quarter.

Walter is also holds an approximate 27% equity interest in Tinder Morgan's Permian Highway and.

The natural gas pipeline with capacity of 2.1 billion cubic feet per day also supported by minimum volume commitments.

Despite the challenges the Corona virus construction is BHP remains on track with serve is still expected to commence in early 2021. This was confirmed by the operator during its first quarter update last month.

The enterprise products operated center natural gas liquids pipeline continued its steady performance through the first quarter, providing stable EBITDA contributions to office.

This pipeline is integrated with enterprises entire system in the Permian and its ability to deliver Y grade directly to fractionation and storage facilities at Mont Belvieu on the Gulf Coast provide significant advantages to NP companies in the Permian.

The epic crude oil pipeline went into full service on April one with a smooth startup.

Oil volumes in the Permian remain challenged due to reduced drilling activity.

However, epic is aggressively sourcing business and adding incremental revenue from short term storage and transport deals.

Well move on now to our gathering and processing business.

In line with previous discussions we remain focused on third party volumes to add on to the production we process from Alpine high with the addition of our new VP of business development, Steve Knowing we have strengthened our deal team that is actively pursuing third party volumes, we offer a distinctive processing capability that can be.

Bundled with take away capacity to move customers product premium markets, along the Gulf Coast.

The current market situation is slowed the pace of many of these conversations. Nevertheless, we have identified a number of opportunities that remain promising and we continue to engage with prospective customers in both the upstream and midstream sides of the business.

In addition to pursuing third party GMP business, we continue to process Apache's Alpine high production.

She has eliminated all drilling and completion activity for an indeterminate period of time and alpine high.

Due to continued volatility in wahab basis, differentials and NGL prices volumes that alpine high remain a dynamic situation.

We continue to work closely with Apache on accommodating production throughput.

Then we'll provide more detail in his remarks.

Our operations team continues to focus on what is within our control primarily on the cost side in the fourth quarter of 2019, we reduced opex by 5% from the third quarter.

And have further improved first quarter 2020 cost savings by 15% over the fourth quarter.

As an example of our ongoing efforts to reduce cost all electricity needs of the oldest diamond processing facility, including the bulk of residue compression are being converted to grid power, providing significant opex improvement.

Also says cost structure continues to benefit from our 2019 reorganization and we are taking another look at every expense in the system to further reduce operating costs, we will have more to say on that in the future call.

The team continued its strong performance during the first quarter uptime exceeded 99% in flared volumes were less than 1%. We also maintained our safety record with no recordable incidents during the first quarter.

In closing Altice is positioned to successfully navigate this current economic downturn through its diversified cash flow streams strong balance sheet and healthy liquidity position.

We will continue to focus on bringing in additional third party business, reducing cost and operating safely.

I want to thank our team again for the ongoing hard work and with that I'll turn the call over to Ben.

Thank you claim.

First and foremost I would like to reiterate clay's comments around our team and thank them for their extraordinary efforts and commitment to operate safely and efficiently in these uniquely challenging times.

As noted in the press release issued yesterday also as reported a first quarter net loss, including non controlling interest of $27 million.

This included $62 million related to an unrealized embedded derivative loss, which reflects a technical accounting revaluation of the embedded derivatives in our preferred units due primarily to volatility and interest rates at the end of the quarter.

There is no impact to the Companys ultimate redemption price of the preferred units.

Excluding this and other small items altus generated first quarter adjusted EBITDA of approximately $46.5 million.

Gathering and processing throughput volumes for the period averaged 577 million cubic feet per day down 9% compared with the preceding period.

Volume decline is related primarily to reduced operator activity and alpine high including some voluntary curtailments in March due to low NGL and while higher prices.

Approximately 75% of first quarter volumes were rich gas.

Given the persistence of low prices through most of April we have seen additional curtailments in the second quarter as Clay mentioned this is a dynamic situation and we're working with Apache on a daily basis to manage throughput during this volatile commodity price environment.

Based on past well performance following production curtailments. We believe these processed production variances are a deferral of revenue to office and not a permanent loss.

Thus, we anticipate a lumpy GMP volume profile during the year as Apache responds to commodity price signals.

Capital investments in midstream infrastructure during the quarter were approximately $90 million.

This included $83 million for our JV pipeline projects comprising capital calls for ownership and epics crude line and the Permian Highway pipeline. The two remaining long haul JV pipeline projects still under construction at the beginning of this year.

Capital for gathering and processing infrastructure for the first quarter was $7 million.

Including our gross proportionate share of capital and equity method interests, which is how we guide to growth capital investments 2021st quarter capital totaled $97 million.

Access to capital since the pandemic began has been uncertain and in many cases challenging for companies across multiple industries. So it is important to highlight ultra such strong liquidity position.

Our credit facility extends through November of 2023 and.

And has investment grade like covenants.

In January this facility was expanded to $800 million and less than 500 million was drawn at the end of the first quarter.

We expect this will be more than sufficient to meet our capital needs until Phd comes online and we are free cash flow positive.

Our liquidity, maybe further enhanced as we evaluate and execute certain assets cells, which represent an estimated $20 million to $30 million.

Well, we've previously discussed our goal of implementing a dividend in 2021 distributions will ultimately depend on multiple factors, including the economic environment for now we believe it is prudent to ensure we have ample liquidity manageable debt and a strong balance sheet over paying a dividend prematurely.

Our financial projections for 2020 remained dynamic.

The market continues to adjust to the large supply demand imbalance and impacts of coated 19 on the global economy.

In the Wahab basis remains extremely volatile however for now our guidance range for gathered volumes remains unchanged at 480 to 520 million cubic feet per day.

Adjusted EBITDA for the year is currently expected to range from 150 and $190 million.

This downward revision from the previous guide primarily reflects reduced forecasts from both epic crude and NGL pipelines that have been impacted by lower activity in the Permian basin.

Our 15% improvement and GMP cost savings during the first quarter helps to offset lower JV pipeline throughput.

Distributable cash flow for the year has also been revised.

Primarily due to expectations for Sunoco.

In line with previous DCF guidance, there are no cash distributions from epic included in 2020, given the priority to project level finance.

Growth capital guidance is unchanged at this time, we expect capital investments in our GNP business to be de Minimis for the remainder of the year with more than 95% of capital in the second half of the year being directed towards ph Pete.

As we have done in the past our guidance reflects our gross proportionate share of capital without taking project finance into account.

Epic crude is the only JV that has project level financing and the recent upsize event that has funded a portion of the projects capital overruns.

Therefore, we expect our share of funding will be lower than the gross proportionate share we have outlined.

As noted in Kinder Morgan's first quarter earnings call Phd remains on schedule for an in service date in early 2021.

With the startup a Phd all four of our JV pipeline projects will be in service and contributing to our results.

Looking further ahead into 2021, we don't see a need to access any additional capital source to execute our plans.

Our ability to generate cash is underpinned by the strengthened diversity of our JV pipelines.

And with all of our JV pipelines fully funded and operating next year, we will be in a strong position to generate cash.

Ill now turn the call over to the operator for Q money.

Thank you as a reminder to ask a question you will need to press star one on your telephone so let Joe your question the town key please stand by what we compare the kinda roster.

First question comes from scared the needs with credit Suisse. Your line is now open.

Hey, guys.

Like the thought of the cost cut quite sounds like more to come there so realized details.

Might be life, but comprise a sense of where they're looking to extract more cost and maybe just general timing around when you think you can both on that.

Yes, Thanks for the question Spiro and and as I stated in my previous comments, we had some really good cost savings between the third and the fourth quarter of 2019, and then we had the follow on in the first quarter 2020.

We continue to to look for items, where we can reduce cost and part of its just coming from a a debugging mode of the plans as we brought those on last year and starting to de bottleneck and make sure that we have the most efficient operations out there. Our staff is better trained they understand what the plants can and key.

Cannot do so part of it is just getting more efficient and we're seeing efficiency gains every day.

With that said, we have a major item that we think is going to be very helpful. From an expense reduction standpoint, and that is the conversion of our.

Our residue compression right now is mostly fired with natural gas, but we also have electric residue compressors that are on site.

The plants themselves use a lot of electricity, that's all been generated and that's all been gas fired generation.

So we've made efforts in the first quarter to convert over from the generated power that we have on site and also to convert our residue compression to electric.

Compression and that will greatly reduce our operating and maintenance cost. So we see that is a big plus from a in Opex standpoint, we think thats going to be a good reduction by going to try and quantify that today, but we have expectation that we'll see a great deal of that in the said.

Second quarter as we bring the compressors on the electric compressors on in April So, we'll get a lot of benefit from that in May and June once we've worked the bugs out of that in April and and then follow on quarters, but we think thats going to a big reduction not to mention the fact that were.

Just getting better what we do we like the team has identified areas, where we can save expenses on down the line and so thats something that we're excited about so we havent stopped were not nets status quo mode.

And we think this is an area, where we can we can improve and that's just going to to benefit us from a good EBITDA standpoint, as we go forward and Thats not something that we have projected we're not not trying to to put that benefit for that something that will realize I think that will be upside and part of the reason for the upside that we.

Have in our EBITDA guidance.

Okay Thats encouraging here.

So if he has a bit Ben thanks for your comments on Apache Thats, how material and year helps explain some of them both in the guidance, but I guess on a go forward. How are you expecting any sort of incremental shut in risk at this point, obviously hearing a lot about widespread settings in the Permian, but you guys obviously gassier.

Which I'm sure changes the calculus, and Ngls and generally held up pretty well relative to crude so what seemed like maybe the risk is not as high that but just curious how you're thinking about it.

Okay.

That's.

Good question.

I think as we look at it. It's it's it is dynamic we work with Apache.

And given that alpine high as a rich gas play.

It is tied to both NGL prices as well as.

The wahab price and we've seen the strengthening in Wahab.

Over the course of the last four to six weeks.

And thats taken into consideration by Apache as they assess.

The economic viability of each well out alpine high.

A mix of both wall Hot and NGL prices and so.

NGL prices got depressed I think in the March timeframe.

On ethane got down to eight or nine cents and propane was in the kind of low to mid teens and they've since recovered and so it just gets to the point that I made.

We all know that the forward curves on all those are.

Very volatile and and unpredictable, but that's just going to lead to a lumpy profile. The good thing is that we've got a good integrated team out there the plants are very nimble enable too.

To withstand either.

Ethane rejection ethane recovery and the ability to ramp volumes up and down pretty seamlessly. So it is a.

Team effort.

The team did a great job in the first quarter I mentioned too.

And my remarks that in early April there were also some curtailments as well.

Just kind of have to see how the year unfolds. The reason I said that we really think of it as a deferral of revenue as opposed to a loss is because you may recall that there were some curtailments last year as well.

From Apache when they were leading to.

The Gtx line coming on which came online in September.

And so then throughout the fourth quarter when the rest of those wells that were curtailed came online they met and in some cases exceeded our expectations.

As those wells came back from being curtailed so.

Net revenue came right back to Apache as we continue to gather and process.

That gas so it's going to be dynamic, it's going to be lumpy.

And we'll continue to work at with Apache.

Say that one of the reasons why our guidance for the GMP business was it was very modestly move down was because it was a slight deferral of that revenue from 2020 into 2021.

So.

For that answers your question.

No. It does that help on really appreciate it. Thanks for this afternoon guys be well.

Thanks, Barry you too.

Thank you.

Minded to ask the question you will need to press star one on your telephone.

I am not showing any further questions at this time I would now like to turn the call back over to Clay Bret Jones for closing remarks.

Thank you Joe Hill.

Before we end I wanted to leave you with a few final thoughts.

This is well positioned to withstand the current market downturn and remains financially viable we have no near term debt maturities, we have solid cash flow coming from a diversified portfolio of projects and ample liquidity to execute our growth plans. We've adjusted practices to confront the threads posed by cobot 19 and continue.

To reduce our cost structure.

While the economic environment is uncertain challenges create opportunities we have a new team dedicated to bringing in additional volumes that make economic sense, our team and the facilities. They operate have been outstanding.

The Permian is a resilient basin and it will come back.

As it does all this will be there to safely gather process and transport the oil and gas at our customers produced and that is needed by all sectors of our economy.

Thank you for listening into our call I look forward to sharing with you our progress growing going forward. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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