Q2 2020 Enable Midstream Partners LP Earnings Call
Time, I would like to welcome everyone see enable midstream second quarter 2020 earnings conference call and webcast.
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Mr., Mike easily let me begin your conference.
Thank you good morning, everyone presenting on this morning's call for Rod sailor for President and CEO, John Laws are chief financial officer to achieve social distancing limit trouble, 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 question.
Earlier. This morning, we issued a earnings press release father form 10-Q, with the FCC earnings press release form 10-Q filing in the presentation that accompanies this call for all available in the Investor Relations section of our website will also be posting a replay of today's call to decide.
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 projections can be found her 65.
We'll be reporting non-GAAP financial measures on today's call, which we reconciled to the nearest GAAP measures can be appendix of today's presentation. We buy she to review the disclaimers in this presentation. Both forward looking statements and non-GAAP financial measures.
That will get started and I will turn the call over to Rod sailor.
Thanks, Matt Good morning, Thank you for joining us I would like to begin my remarks on slide four with a few high level business updates first Ur Cobot 19 safety protocols remain in place and we continue to monitor local state and federal guidelines and recommendations for help organizations today.
The pandemic has not impacted our ability to maintain safe reliable operations.
So it's early May we have seen a substantial increase in crude oil prices.
What parts of this increase the crude focus shut ins we saw during the second quarter.
A significant as previously anticipated.
With the outlook for higher future prices, we've seen some lean gas wells in the stack shut in and we expect those shut ins may continue through the third quarter.
Based on current commodity prices, our latest discussions with our customers and progress or cost and capital reduction initiatives. We are reaffirming all aspects of our outlook for 2020 provided for first quarter earnings call.
Finally, despite industry challenges, but able continues to benefit from it strong balance sheet significant scale in key operating basis, and our overall diversified asset portfolio of gathering and processing systems interconnected with natural gas transportation and storage systems.
I will now cover a few financial highlights on the next slide.
First our distributable cash flow exceeded our declared distributions by $76 million for the quarter fully funding our expansion capital expenditures.
As I mentioned, we've made good progress executing on our expansion capital and cost reductions we announced in early April.
The cost front.
Recently took steps to align our organizational structure for the current industry environment, reducing staffing levels, while building for flexibility on the future.
This organizational restructuring resulted in a reduction of 165 positions across the company, including the impact of planned retirement and eliminating open positions.
We also have a cheap cost savings from releasing leased assets by redeploying existing assets and optimizing operating processing plant assets to match current volumes.
As I've said before we're limiting our capital expenditures to contracted long term transportation and storage projects and contracted capital efficient gathering and processing projects for our Gulf run project. We continued to have commercial discussions to increase the firm commitments to the project we expect those to.
Discussions will continue through the second half of the year. Once concluded we will finalize the scope and execute our funding plans.
Well some producers have faced credit challenges in the current commodity price environment.
We have not experienced any meaningful credit losses during the cycle.
Our gathering and processing segment, we are typically a net payer for our natural gas processing customers, which helps mitigate our credit exposure and we generally have the right request adequate assurance from non credit worthy counterparties.
Our credit profile is also supported by strong base of large investment rate utility customers in our transportation and storage segment.
Finally, we repurchased approximately 22 million aggregate principal amount of our senior notes during the quarter for approximately $17 million plus accrued interest.
We will continue to evaluate opportunistic note repurchases based on market conditions and available liquidity.
Turning to our commercial highlights on the next slide.
We contracted or extended almost 1 billion Deco therms per day of transportation capacity during the quarter, including our previously announced re contracted capacity with GE Tees largest customer circ.
The contracted term for the majority of the renewed circ capacity is nine years and the effective date of the new contracts will be April 1st 2021, the circ contracts along with our recent MRT contract extensions and our 20 year Gulf run commitment from Golden pass LNG demonstrate.
The strength of enables integrated transportation systems and significantly extended the partnership's weighted average contract life.
The Gulf run project is proceeding on schedule and Fercs current schedule anticipates environmental assessment will be issued by the end of October.
Subject to FERC approval, we still anticipate placing the projects into service in late 2042.
EG Tees mass natural gas transportation project remains on schedule for anticipated second quarter 2021 startup. We also recently received a five year commitment for 80000 Dekatherms per day, a firm capacity on your mortise self out expansion project with an anticipated fourth quarter 22.
In service date.
Finally, our joint venture pipeline SESH has upcoming contract expirations with the key shipper later this quarter. We believe SESH plays a key role in serving markets in the southeast with a load factor of well over 90% in recent years and we're focused on re contracting this capacity.
Turning to our gathering and processing commercial highlights.
As I mentioned in my opening remarks shut in volumes for the second quarter were less than we had anticipated.
Well as curtailed at the Scoop and stack plays lower crude prices are substantially back online, but we have seen some shut ins and the gassier part of the stack due to anticipated higher natural gas prices.
We expect these shut ins of approximately two tbtu per day to continue through the third quarter.
Williston basin, all but two pads are now back online.
Fortunately to date, we have not experienced any significant degradation in well performance from the production that is coming back online.
We have seen continued investment for producers in the Haynesville shale play and the plays long term outlook remains strong.
Rigs also remain active in the Anadarko and Woolston basins building docs to support future volumes I will now turn the call over to John discussed second quarter results.
Thank you Rod and good morning, everyone I will now cover a few of our key operational and financial metrics for the quarter as always you can find a more detailed and comprehensive overview of our financial and operational results on our second quarter earnings release and in our 10-Q, both of which were released earlier. This morning, you can see the impacts of.
Recent production shut ins on the operational performance overview slide.
Natural gas gathered processed in transported volumes saw decreases compared to the second quarter of 2019, primarily as a result production shut ins and the Anadarko basin. The decreases in our natural gas gathered volumes were partially offset by higher natural gas gathered volumes in the architects basin as a result of can.
New drilling activity in the Haynesville shale play.
Crude oil and condensate volumes were also lower as a result of the shut ins in both the Anadarko in Williston Basin as Rod mentioned the shut ins we saw for the quarter were lower than what we assumed in the financial outlook. We provided in May.
Turning to our financial results on the next slide we saw lower revenues gross margin net income for the second quarter up 2020 compare to the second quarter of 2019, primarily as a result of the lower volumes and prices and changes in the fair value derivatives as result of increasing commodity prices from first quarter two.
2022, the second quarter of 2020.
Net income was also impacted by an increase in our I want him and DNA expenses for the quarter, primarily as result of a noncash loss on retirement of an architects gathering system decreases in our adjusted EBITDA and DCF results were impacted by lower prices and volumes, but these measures exclude the non.
Cash impacts from the changes in the fair value derivatives, and the noncash loss on retirement of assets.
DCF also benefited from lower adjusted interest expense and lower maintenance capital expenditures for the quarter. After considering the distributions declared enables distributable cash flow exceeded distributions declared by $76 million fully funding our $26 million of expansion capital expenditures.
For the quarter.
This was yet another quarter of continued execution for enable albeit against different plan than what we had envisioned at the beginning of the year and as Rod mentioned earlier in the call. We are reaffirming the outlook, we provided last quarter and we still expect to fully fund our anticipated expansion capital expenditures for the year, while reducing.
Total debt levels.
With that I'll turn the call back over to Rod.
Thanks, John This is I've said before enables a strong company that has built for the long term. We believe we entered this downturn from a position of strength or large scale fully integrated midstream platform is a critical link between production and downstream markets. Our contracts are primarily fee based and we expect.
Over 90% of gross margin for the balance of the year to be fee based or hedged in or transportation and storage segment. We continue to develop new capital efficient projects and re contract capacity.
Our gathering and processing segment, we are aligned with key producers in key producing basins and recent long term natural gas outlooks from wood Mackenzie support long term growth in the Scoop stack in Haynesville plays we took decisive action earlier this year to strengthen the company and we will continue to take.
The necessary actions to position enabled for success in 2020 and beyond.
We will now open the call for your questions.
Well now begin the question answer session.
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Hi.
Our first question is from good morning.
Your line is open.
Hello.
Oh, yes.
Hey, good morning.
Quick question on my connections kind of course, hopefully see journey.
Expectations sort of in some of the stock on the dry gas coming back.
Has that come back entirely and then also you mentioned record volumes in the dark with.
Trajectory.
The here you can you can speak to that a little bit too.
Sure Hey, first on the stack, primarily the shut ins that we talked about on the first quarter call were largely in the scoop area the more.
Crude they're more focused areas.
And as we said.
In the release and as we said on this call what we've seen just with the price dynamics looked like they are strengthening the back half and early 2021.
Have now seen so has the scale ski crude and gas has come back online we've seen some of the stack wells.
Get shut in and again as we said right now we would anticipate that state those to say those volumes to state.
Oh really either third quarter believe you're breaking up a little bit, but I believe the back half of your question was around was around Haynesville and again.
We continue to see those volumes those volumes growing.
Through the through the year and.
So I think.
Question.
Yeah that was that.
Yes.
Mark.
I'm project was that you and then also sequentially it looks like the amount of contracted capacity on the Interstate side declined slightly.
So what that and what where and what impact was.
Yeah, We did we did we get announced expansion of ourselves.
The.
Oh I'm sorry.
No that's right so.
I guess brown sand, we got the southbound contract.
That is what we were talking about before we had entered and got everything finalized with the MRT agreement. We did have some ability to close out.
So that is that his view.
It is new for this year, but it had been contemplated.
In the first quarter, when we talked about the contribution that we were expecting from the rate case in future years, I think you think about the sequential.
Options you know we did have.
Just to remind you some of that some of the turn back that we had talked about an aggregate volumes.
On MRT from some of the larger customers there, but again bunch of that was replaced with the new rates that we talked about in the first quarter.
And then we also had exploration.
Online CP earlier this year, that's showing up in the sequential numbers as well.
So nothing really new from a development standpoint than what we had on was contemplated and really no no capital.
Diminimus capital southbound expansion if that was your question.
No.
Last one for me is just on there's some language in the queue about the dapple such shutdown or potential shut down.
And the fact that.
The last couple of positive living off line has not waiting on with Apple decision at Apple does go offline your view in terms of how volumes work there.
Yes, I would say we feel like we have outlets for all of our crude.
Outside of doubtful capacity, but I would say that again, if that works be shut down thats going to put pressure on the entire basin and that would with likely result in some some.
Elements.
Again right now.
We believe that again, the two pads that are offline.
It's not related to the dapple.
Okay.
Our next question.
Great.
Morning.
Just looking at the for your guide to 960 million.
Adjusted EBITDA versus first half at a little over 500 can you speak what are your expectations for the back half the year. It seems like the guide would imply flat to down versus Q2.
Yeah, Cold and I think.
You know as we as we affirmed.
On the call this morning, our ranges.
We really would point, yes directionally.
Anywhere kind of north of north of the midpoint.
We're comfortable with the range as since today.
Understood.
And then you mentioned you're still in commercial discussions around Gulf Ron any preliminary thoughts on how you might find out projects and whether the existing commitments are sufficient to attack our to attract project financing.
Yeah I would again, we've we've got was just mentioned and ask bill options around.
The Gulf run funding I think we need to as good as we said on the call in the slides, we still have some commercial discussions going on we need to get those us. Several we would anticipate that we'd have everything wrapped up by the end of year on that.
As to the answer a project financing yeah, we've got really strong contracts currently very good credit quality behind that.
That is an option we did look at along with some others. Some other discussions we're having both with the.
Financials and other players.
And I appreciate the color.
Your next question.
With JP Morgan.
Hi, Good morning, just wanted to kind of pick up with the guidance you know question from before here.
And he said I wouldn't point to anything north of the middle of the range and I guess, just trying to think of how that ties to the cats.
Rigs running on your area is that kind of assuming you have the current.
Drilling activity levels.
State it consistent from what you've seen in July with a seven rigs here or is that assuming kind of rig declined just trying to get a feeling for.
Signposts there.
Yeah, no over say a few words, then turn it over to John Jeremy, but I think again as we said we continue to see activity.
Longer system us specifically on the Anadarko and the Haynesville.
Darko, we're not saying a lot of completions, primarily what we're saying as Doug counts grow in the Anadarko and in the Bakken area.
Again, there's still some uncertainty around price and that's why we're guiding way that.
Again, the way, we're guiding and John you May have no.
Yes.
Got it thanks for that and.
During the quarter I think you guys made some my.
Bond repurchases out there just wondering if that's something we should expect.
Expects to continue thing happen, what's the kind of the rate at the latest with the rating agencies their legacy or your thoughts on retaining investment grade.
Yeah, So I think German it's John three part question there as it relates to the to the repurchases.
We're opportunistic in nature.
No.
Through the.
Second quarter for where we started in early.
Yes present very wide.
Bonds of the complex was trading at a pretty deep discount we saw meaningful.
Recovery of course during the quarter, but we were able to take advantage of.
A little bit of that discount on an opportunistic basis.
Yeah, I think you should continue to expect us to think about an act opportunistically if that makes sense.
But where we're at from a.
From a rating agency standpoint is.
You know not dissimilar from from where we where we've been in the past ratings of all recently been affirmed we do have negative outlooks at a S&P and Fitch.
Pitch.
But you know I think we're we're continuing to work towards.
You know the efforts that we've described for you this year earlier in the earlier in the second quarter around.
The actions and initiatives that we've taken to preserve liquidity and flexibility.
Through the year and for the future. So the agency agencies are well aware that they've been commented on that and are out there and so our our dialogue there hasn't hasn't changed and.
Yes, we continue to make good progress on that.
On the commitments that we've made on cost improving liquidity.
And maintaining that capital discipline as well.
Got it makes sense in just the last one if I could wanted to get your thoughts with regards to some M&A activity. We've seen in midstream recently, you saw Berkshire kinda make a big purchase in the space and I'm wondering.
Wondering you thought there you guys own transmission assets of you know kind of similar.
The more stature that and just also I guess with the two new additions board wondering if would be any kind of review of you know.
Strategic outlook for enable at this point.
Well I think as we've said in the past, we we look at a number of things all the time, we're we're very active and understanding what the what transactions are taking place.
And the market so probably the only answer I wouldn't give as it relates.
To some of the M&A activity that we've seen.
I would say as to the new board members they were appointed yesterday.
Get two very strong industry.
Individuals have a lot of upstream and midstream experience very well regarded in the space and we look forward to working with them, but as as we sit or they don't see that it has any change in the direction that we're going in.
Got it fair enough I'll stop there. Thank you.
Thank you Jeremy.
Our next question.
Sure.
Hi.
Good morning.
Yes to follow up on the.
And with respect to kind of the new board members and so forth, it's sort of seem to every couple of years, there's sort of seems to be a discussion about your GPU intense.
With respect to their holdings and so forth, it's just isn't.
Yes.
It is that just similar to the ones. We heard a couple of years ago or does the current environment. The fact that you should we should earlier this year sort of accelerate in sort of change. The he saw interest in trying to sort of resolve the entire GP versus LP relationship with in April.
Again, I think if you're addressing that is how centerpoint views their investment in April I think Thats a question better ash.
Of Centerpoint.
And their management.
Got it okay.
Oh pivoting to Gulf, Brian you talked about one of your earlier response is that you've got.
Financing options. If you were to go down in the route would you want to retain operating control.
Be willing to give up operational control.
If it was with a larger partner of sorts.
Well I would I would say this way again generally are predisposition is to own and operate our assets, we think that we're Gulf run.
Sits and again the ability to bring gas in from both the garbage and Parago size that gives us a lot of optionality around our system.
But again.
Well evaluate all options and we would never out of term.
Just dismissed any options, if we think that it brings more value to enable than any other interruption.
Okay, and maybe one last follow up.
How should we think about wholesale production for the second half of 20 to 21, no just kind of what we're seeing with gas prices and so forth you've got an MVC contracts rolling off will that impact production volumes just.
Kind of wondering if you talked about the puts and takes as we sort of call Greg.
Yes.
He CCEP roll all that system, we continue to see volumes grow again, it's our belief.
That you know again those producers are are fairly significantly hedged they've done a great job in maximizing.
You know minimizing well costs and maximizing returns around.
The haynesville production than we would continue as we sit here today see it see rolling into the into into 2021. So.
And again, we're not giving you guidance on 2021 yet.
Fair enough appreciate all the color today guys.
Very much and have the same day.
Thanks, Finnair you too.
Your next question.
Oh.
Global security.
Okay.
Hi, Good morning, guys and hopefully what do you see thanks for taking my question.
I was wondering if you could talk a little bit the boat.
Cherish and especially with regard to the competitiveness of natural gas into Florida market.
Sure.
Morning.
I think the way that we think about sashes.
It comes off.
As sort of the the eastern end of of Airlines GPS system, and there's a number of other interconnection points and feeds down into the into the Gulf stream.
Gulfstream delivery point and on into the fourth markets. We think that that pathway is a cost advantaged pathway is one that has shirt.
The Florida in southeast power markets for a long time, and we believe that.
Continue to do so.
As the end the call for power generation over time.
We expect to continue to continue to grow out of that area that basin. So we see it as a very competitive.
Alternative for.
For the southeast power markets.
And then as you look at Recontracting did you give us a sense of.
End of options that you should think about in terms of Oh.
<unk>.
Yeah.
It's bonuses.
But you know I'd stop short of going exactly there we are in active discussions with with the number of parties.
Around how we how we think about re contracting and when I say, we I mean that assess joint venture and so those are those are competitively and commercially sensitive but.
Again, I'll fall back to we do believe that this is a a competitive.
Sourcing supply for those markets and we think there's a there's a good long term.
Liability for that asset.
[noise] on that in terms of the timing.
Are there any that lead to distinctions.
Things that we should be I read out in terms of resolving that.
I think.
Now that I'm aware of.
Okay.
Thanks for taking my questions.
Yeah, you bet.
Again, if you like to ask a question. Please press star.
Thank you Todd.
Next question is from.
Research Your line is open.
Hey, good morning.
Two questions for you I think first is I mean could you could you talk a little bit about the cadence of although in M. cuts.
He just looking at Q2, it looks like it was.
Flat or a little bit higher than Q1, just on energy and did that include things like cost to achieve and then maybe maybe if you could talk a little bit more about the flex point.
And when you might want to look at look more hard look harder at additional cost cuts I guess to their view of as you mentioned, there as well as well in the environment, where that will make sense or good things need to get worse.
And the second question would just be on I guess following up on session as well is putting into context with centerpoint.
Okay.
As I recall in the queue, there's a provision where I guess enbridge could could buy.
Good good exercise an option to buy sash.
In the that that Centerpoints kind of has a lower interest in that business.
It could kind of one of the mechanics, and how that would work.
Yes on your on your cost cuts you I mean, we started after our announcement.
Back in late March.
The start cutting cutting cutting cost we've gone through as we said in the release, some more or redesign and at a were largely through that that process. We've we've.
Now identified and achieve the majority of the cuts that we talked about.
For.
2020.
Some of those especially around.
Headcount reductions will we'll get a full year effect in 2021, we've still got some work to do to achieve all of the cost cuts that we talked about.
In our release for 2021, but I think we're on track on track for those and we're going to open. So again I think you can continue to see arrow in him come in line with or the cost cuts come in line with what we announced in late March in early April and Alex It's John just want to make sure you took note.
Any out one m.
In July numbers for this quarter.
As a $17 million loss on retirement embedded in the quarter.
Thanks Ashley.
Yes, and then as it relates to SESH.
Right there is a mechanism there.
But look at the end of the data there.
It's not quite as straightforward as as you might think it's complex or a number of.
Uh huh.
Triggers that that one would have to work through in order to understand if the test had been satisfied to trigger the repurchase option and then the repurchase to the extent there wouldn't be one it would be a fair market value.
In any event.
Great. Thanks.
This concludes our question answer session.
The conference back over to Mr. sailor for any closing remarks.
Thank you all very much and in closing I want to recognize our employees for their hard work dedication and continued focus on safety. During these challenging times I don't think everywhere on the call for your interest and enable and hope you all main safe and safe and healthy every day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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