Q2 2020 Summit Midstream Partners LP Earnings Call
Welcome to the Q2 2020 Summit Midstream Partners LP earnings Conference call.
My name is that effect and I will be your operator for today's call.
This time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you had a question. Please press Star then one on your Touchtone phone I will now turn the call over to Ross Wong Senior director of corporate development and find out Mr. Long you may.
Again.
Thanks, operator.
Good morning, everyone.
Don't already have a copy of our earnings release that was issued earlier this morning.
Please visit our website at Www Dot summit midstream Dot com.
Oil flooded on the home page and that's the presentation section or quarterly results section.
With me today to discuss our second quarter of 2020 financial and operating results is he's done a key or president Chief Executive Officer, and Chairman, Marc Stratton, Our Chief Financial Officer long other members of our senior management team.
Before we start I'd like to remind you that our discussion today may contain forward looking statements.
These statements May include but are not limited to EUR estimates of future volumes operating expenses and capital expenditures.
They also include statements concerning anticipated cash flow liquidity, that's the strategy and other plans objectives for future operations.
Although we believed that the expectation is reflected in such forward looking statements are reasonable we can provide no assurances such expectations will prove to be correct.
Please see our 20 nights in annual report on form 10-K, which is part of the FCC on March life 2020.
As was our other SCC filings for a lessening the factors that could cause actual results to differ materially from expected results.
Please also note that on this call we use the terms EBITDA adjusted EBITDA and distributable cash flow.
These are non-GAAP financial measures and we have provided reconciliations to the most directly comparable GAAP measures are most recent earnings release.
I will turn the call over teeth.
Great all right, Thanks, Ross and good morning, everyone.
Really no thank everyone for joining us on our second quarter 2020 earnings call.
So earlier this morning cement reported second quarter 2020, adjusted EBITDA of 64.6 million and distributable cash flow a 42.7 million.
These results were in line with our expectations and reflected the impact of the challenging market environment that I highlighted on our first quarter earnings call in early May.
Some of generated free cash flow of 26.3 million for the quarter.
Based on 35.2 million of cash flow from operations and 8.8 million of cash paid for.
Capital expenditures, which underscores the value of our resilience of our diversified assets.
Our largely fee based revenue model and modest capital expenditure needs.
The strong cash flow enhanced our financial flexibility and enabled us to pursue certain balance sheet enhancing initiatives such as a the open market a debt repurchases, which we'll discuss and later detail on the call.
So the oil and gas Ah landscapes or not remains challenged got no ongoing depressed commodity prices ER stress capital markets and of course or are they seemingly never ending or krona buyers pandemic.
In response to cover 19, we implemented changes across our organization that enable our employees to work safely and efficiently while maintaining business continuity during the ongoing pandemic.
Some of these changes include initiating a corporate work from home program.
While improving our IP infrastructure. So we can support a better support working remotely and adjusting our work policies and procedures to comply with social justice the best practices to help further mitigate the spread of the virus.
The health and safety of our employees and continuity of our business operations, our top priorities and we are prepared to continue operating in this manner until the impact of the virus subsides.
Well there so there's a lot of uncertainty regarding how long depend nickel last I am confident that the changes we have implemented will allow us to operate effectively in this environment for the foreseeable future.
During the second quarter, we we experienced decrease drilling activity as we expected now we also had deferral of well completions and and of course temporary production curtailments of if somebody had.
Economic production across several of our operating areas.
Our production shut ins have had a significant impact on the business and really in the aggregate have accounted to approximately 14000 barrels per day of liquids and around 46 million a day of natural gas volumes being shut in across our systems in the quarter.
These are temporary shut ins were more most prominent and they will lift in the DJ basins, but we also experienced a meaningful shut ins behind our Utica shale segment, which really started in mid June as as customers deferred production to Ah attempted to capture higher natural gas prices.
Your forecast and later this year.
Our Ohio gathering joint venture also had an average of approximately 70 million a day of gross condensate and wet gas volumes shut in during the quarter.
Although second quarter natural gas volume throughput on our operated systems increased by nearly 9% I relative to the first quarter growth was driven solely by the performance of our Utica Shale segment, which was only reportable segment that a experienced an increase in quarterly volume throughput.
No we expected the lion's share up production curtailments to occur through May however, material shutdowns have prolonged in certain areas and still exist behind some of our systems, which I will get in further detail later on the call.
So the second quarter narratives four assets and operating areas. Our bittner. So why don't I provide a few details here by reportable segment.
So starting with our core focus areas, our Williston basin segment experienced multiple had one throughout the quarter and in fact, several challenges that frankly continued to persist.
Our customers again curtailing production in April and continued to maintain a substantial amount of shut in volumes through the entire core which adversely impacted our average liquid.
No gas throughput volumes by approximately 14000 barrels and 2.4 million per day of gas respectively.
Well the peak of the shut ins occurred in May our liquids volumes, our liquid volume throughput continues to be impacted by curtailed production in the region.
And also the on the market backdrop in the Williston Basin has continued to be particularly challenge as evidenced by two of our predominantly Bakken expose customers, having recently filed for bankruptcy in the past few months.
I am pleased to now so we have recently amended those.
Contracts with those customers, which would become effective once the those companies emerged from bankruptcy.
While the specific contract terms of deferred that I think the key aspects of both contract amendments were that we extended the term of the acreage dedication and exchange we did give some modest concession on gathering fees.
Overall, we expect the impact of these amendments that to have positive implications for both summit as well as our customers by providing a lower fees to help incentivized incremental volumes in the near term, while providing more long term cash flow.
As well as healthy margins for business.
Uncertainty regarding the legal and regulatory environment has also been a theme recently highlighted by the ongoing legal proceedings associated with the Dakota access pipeline, which are key pipeline that transports approximately 570000 barrels of crude out of the Bakken.
So while we view the DC Circuit Court decision earlier this week to stay the lower courts ruling to seize DAPL operations, while the revised.
Pending and we view that as a very positive development.
I would to accept that dapple were eventually to be shut in permanently would certainly put significant pressure on in basin commodity prices, which could adversely impacted production and development activity across the basin.
For summit in particular, we do deliver some of our whole gathered on their systems in the dapple.
But at the operations word to cease we do believe that there is a.
Sufficient physical connectivity in capacity to move crude oil.
Downstream AR VR other downstream connections, which include in produce North Dakota pipeline system.
Crestwoods.
Colt real Hot and global partners Columbus Rail terminal.
So look on a on a positive note I you know I do think that the in basin pricing has begun to stabilize to some degree and we are also optimistic and beginning to see some.
Some improvement in commodity prices are and those prices approaching levels that potentially could facilitate some economic drilling and completion activity within our footprint.
And next year.
We do expect also the two of our large customers.
To emerge from bankruptcy in the coming months and when they do we believe there will be better positioned with better balance sheets and ability to fund drilling activities as those prices do improve.
In the DJ our second quarter segment performance was impacted by similar patterns and got some activity as Wilson. However, the curtail production has come back online much more quickly in the DJ.
We had approximately 9 million today of shutting in production behind our deep DJ system for the quarter with a modest amount shut in during April.
And a monthly hi of approximately 17 million a day shut in during May.
The most of the shut in production has come back online dimension and our natural gas a throughput volumes have averaged 25 million a day in July and an average of 20 million a day overall in the second quarter.
Although production shut ins have mostly reversed we still expect a deferral of drilling and well completion activities from several DJ basin customers in the second half of 2020.
We currently have 13 drilled but uncompleted wells in inventory.
And six wells that have been completed but not yet turned in line behind our infrastructure that will serve as a catalyst for increased production.
Future.
We also have had.
I had planned maintenance, which occurred during the quarter, we took our hurford planned down for a few days planned maintenance and they did have some adverse impacts to our results for the quarter, but we don't we don't expect these issues to ER to continue to impact.
Volumes for the rest of the year.
The bromine segment, we also experienced some shutdowns during the during the quarter roughly 70, approximately 7 million today and natural gas volumes were taken offline.
Most of those were front end loaded however, and volumes in July averaged close to fuel our average around 37 million a day versus an average of 32 million today for the fourth quarter.
Permian customers have a have been quicker to bring production back online relative to the Wilson in DJ and we expect curtailments in this region to really no impact for the second half of the year.
On the commercial front, we were able to extend the key contract or one of our customers, which certainly added incremental throughput which helped.
To some degree of offset the effects of curtailment fourth quarter. So despite the the the shut ins that we did experience our Permian basin segment actually generated record quarterly results and we expect the performance, we're really all of our Permian basin segments to be inline with what we anticipated.
Our original 2020 financial guidance.
Moving onto a traditionally what were lower in the Permian doubling continues to to be a focus for for summer and that certainly remains to be a critical infrastructure project for the northern Delaware.
That will ultimately help fulfill demand for for residue gas takeaway.
So during our last earnings call. We commented that there could be some positive implications to double easy to the project costs associated with doubly due to the journal slowdown in the pipeline construction.
Activity.
And I'm pleased to say that we have been able to capitalize on those softer market conditions and have been able to lock in approximately 80% of the of the projects cost via via contracts.
So as a result, we now expect that the.
Project will come and roughly 10% to 15% below the original 500 million dollar budget that was developed a path for the back in June of 2019.
Also a very pleased with how the project is progressing through the regulatory front. We continue to expect the to receive our FERC Sevenci certificate in the third quarter and I'm also pleased with the progress that we're making towards executing on higher third party financing plans, which we.
When consummated, we believe will will.
Cover the majority of the remaining project costs.
For side.
Moving onto the Utica shale strong second quarter performance was a was driven primarily by the volume throughput from seven wells that were connected to our system in mid March including five well pad that continue to outperform expectations and averaged more than 106 million a day, while Oman.
During the quarter.
There were also six wells that were turned in line behind the TPL seven connector pipeline during the quarter, which added incremental volumes, but but did have a smaller impact on segment adjusted EBITDA.
Offsetting the reserve results, however, as a key customer on the Utica shale system did shutting some production on two pads in mid June and attempt to wait for better pricing to to return in the coming months.
These actions, we're not anticipated, but we now expect these pads to remain offline until at least the fourth quarter of 2020.
Based on recent conversations we've had with the customer as well as latest gas price outlook.
I have on a positive I think the the deferral of production will strengthen our 2021 segment outlook and Furthermore, we recently amended a contract.
With one of our large customers to provide an incentive to accelerate drilling behind our at the immune system, which we expect to result in at least 30, new well connections and 2021 and 2022 or across 2021 2022.
In our legacy area.
They continue to provide steady performance with very low capital requirements.
Generated nearly $35 million of Unlevered free cash flow during during the second quarter.
Like our core focus areas, our legacy areas were not materially impacted by production curtailments.
And also outside of a few workovers and our Barnett system, There's there's really no new upstream activity to offset the natural.
Natural production declines during the quarter.
We do however expect to see some positive implications in the third quarter as we brought.
Nine new wells online in our Marcellus shale system in July.
So on July 23rd we announced a revised 2020 adjusted EBITDA guidance range up to 50 to 260 million, which was down from the low end of our previous guidance range of 260 285 million.
So this ranges is now reflective of both the current and expected market environment. It certainly includes the.
The experienced shut ins and our and our Wilson base in the Utica shale and Ohio gathering segments as well as our best efforts at projecting.
The ongoing shut ins that were continued to experience and it also reflects the new and amended commercial agreements that that we referenced earlier them earlier in the call.
In regards to capital expenditures, though we are maintaining our 2020 capital expenditure guidance in the range of $30 million to $50 million.
The going beyond our operating results. The the second quarter really marked a very important Cooper for summit as we made substantial progress on our overall repositioning efforts. So matter we closed the GP by in transaction, which allowed us to suspend our common and preferred distributions and reallocate.
Close to $76 million per year of cash towards Delevering the balance sheet.
We also increased our per unit value by the retirement of 16.6 million outstanding common units.
We reconstituted a a new board, which is now control by independent directors, who are fully aligned with our common unit holders.
We also commenced a series of liability management initiatives that have positively impacted our balance sheet and created a lot of value for our stakeholders.
In late May we commenced our open market repurchases of our senior notes and were able to achieve significant discounts to par value.
This debt repurchase we purchased initiative has has been successful in a relatively short period of time and as of early August we've been able to retire approximately 138 million a par value bonds at a weighted average discount of 42%.
Spending approximately $81 million and cash to do so so said another way we were able to create approximately 57 million of additional equity value for our common unitholders by reducing net debt at a substantial discount to the face value of the debt.
This reduction represents approximately a two tenths of a turn.
Of lower leverage.
So then on June 18th we also launched a an offer for preferred investors to allow them to exchange their series a preferred units for common units.
That is met exchange offer close last Friday and please announce it resulted in the retirement of 62.8 million and face value of the series a preferred units or roughly 21% of the of the preferred outstanding units.
At a 84% discount to that face value.
Return these preferred units help further simplify our capital structure eliminated a portion of our accrued unpaid preferred equity distributions and it generate incremental common equity value of approximately $53 million based on the exchange rate and the common unit price.
At the closing.
At the day of closing.
So in the aggregate since closing the GP by in transaction in late May we've been able to create approximately $110 million in equity value for our common unitholders through our liability management activities on a per unit basis, including the 12.6 million new common units are issued as part of the preferred exchange offer.
But this equates to nearly $2 a value accretion per common unit outstanding.
Philip while we've made substantial progress on enhancing our balance sheet in short order, there's still a considerable amount of work remaining ahead of us to further reduce our leverage to our long term target of sub four times.
So in the near term we are continuing to focus on that initiative. We're also focused on.
Obtaining third party financing for the majority of our doubly capital commitment and we'll continue to work with our revolving credit facilities.
Facility lenders to develop the tools and additional flexibility that we need to optimize our balance sheet and efficient operator business.
We will continue to execute on liability management strategy over the coming quarters, and we will continue to explore really all options, including potentially a full retirement of the DPP Jo.
And an extension of our 2022 bond maturities.
As we kind of get closer into the year.
And we also continue to pursue potential asset divestures and joint ventures that that to the extent that they can generate.
Criminal value and we'll continue to do that and in both of our legacy hand, our core focused areas.
So that let me turn the call over to Mark to discuss our financial results.
Great. Thanks Heath and good morning, everyone.
I'll begin by walking through the segments that comprise our core focus areas. So starting with our Utica shale segment. The SM you system averaged 416 million cubic feet a day in the second quarter and segment adjusted EBITDA totaled $10.7 million, which was up by 80% or approximately $4.8 million.
From the fourth quarter of 2020.
This substantial increase in quarterly segment adjusted EBITDA was primarily due to production from seven wells that were connected to our system in mid March which included volumes from the five well pad that produced an average of more than 160 million cubic feet a day while online.
We also had six new wells come on line behind our PPL semiconductor pipeline during the quarter.
As he mentioned a customer shut in production on two pads in mid June and plans to keep those wells offline until late this year when natural gas prices are expected to be higher.
These shut ins included the five well pad that have outperformed our expectations and was included in our previous guidance. So this was one of the driving factors for lowering our 2020, adjusted EBITDA guidance range to $250 million to $260 million.
Turning to our Ohio gathering segment, adjusted EBITDA totaled $7.5 million for the quarter, which represented a 5.4% decrease from the first quarter, primarily due to lower volume throughput, partially offset by lower operating expenses.
Gross volumes in the second quarter were down 11.5% last quarter due to average production curtailments of approximately 70 million cubic feet per day and natural gas production declines.
There were six new wells connected in the condensate window in may, which partially offset shut in volumes.
During our last earnings call in early May we noted that 110 million cubic feet. A day of gross volumes were shut in upstream of the Ohio gathering system.
We expected those shut in volumes to return by the end of June However, based on the latest discussions with customers, we anticipate that a material amount of those shut in volumes will remain offline until at least lake in the fourth quarter.
This softened outlook for our Ohio gathering segment was another factor for leading to lower revised financial guidance for the year.
In our Williston Basin segment, adjusted EBITDA of $12.7 million was down by $3.5 million dropped into the first quarter, primarily due to a 21.4% decrease in liquid volume throughput to 76000 barrels per day.
Which was mainly caused by production shut ins and natural production declines.
The Wilson was one of our segments most heavily impacted by production curtailments and there were approximately 14000 barrels per day of liquids.
Flying for the quarter.
Although some curtailed production returned late in the quarter there were still more than 12000 barrels a day of liquids volumes shut in for June which was down from 17 or half thousand barrels a day offline in may.
There were also a modest amount of production shut ins behind our natural gas system, but to a lesser extent.
The contract amendments with two of our Williston basin customers that keep highlighted we're not signed until just recently and had no effect on our second quarter results.
We expect both contracts to become effective in the third quarter 2020.
We expect the Williston basin environment to be challenging for the second half of the year and there are several dynamics that have affected our expectations, including prolong production curtailments bankruptcy filing from certain customers and heightened uncertainty regarding the the legal and regulatory landscape.
We have approximately 34, ducs and inventory and eight wells that have been completed but not yet turned to production behind the Wilson basis systems that can spark production growth when customers decide to increase activity.
DJ Basin segment, adjusted EBITDA totaled $4.3 million in second quarter, a 26.6% decrease from the first quarter, primarily due to a 37.5% quarterly decrease in total natural gas volume throughput to 20 million cubic feet a day.
This segment was hit particularly hard by production shut ins during the quarter and our customers curtailed an average of approximately 9 million cubic feet of natural gas production.
We also had planned maintenance that took our hairford play off launched four days during the quarter.
I'd like the Williston Basin, we've recently seen the return of a significant amount of DJ basin production that was shut them behind our infrastructure during much of the second quarter.
July volume throughput for the segment averaged approximately 25 million cubic feet, a day and while we continue to expect deferrals well connections our customers are contemplating connecting 19, new wells in the second half of the year.
Our customers currently have 13 wells in DUC inventory and six completed wells that have not yet been turned in line.
It appears that we are likely through the trough period from DJ basin activity. However, as we've already seen this year the macro backdrop is volatile and the environment can change rapidly.
Permian Basin segment, adjusted EBITDA was another quarterly record and totaled $1.8 million in the second quarter, an increase of approximately 15.6% relative to first quarter, primarily driven by margin mix and extended contract and improvement from the natural gas and NGL pricing.
Although average quarterly volume throughput of 32 million cubic feet. A day was roughly equivalent to the first quarter throughput volumes steadily improved over the quarter and average daily volume throughput increased by approximately 36% from April to June.
There were a limited amount of production shut ins in April, but they have abated and based on customer discussions, we're not expecting any additional production curtailments for the remainder of the year.
Our Permian Basin segment experienced a volume uptick of approximately 9 million cubic feet. A day in may as a result of an extension to the term of customer contract and we expect those volumes to continue for the remainder of the year.
Although there was a variation in operating results for our Permian Basin segment for the quarter.
We expect the remainder of the year to be more stable.
All wells have been connected that works that we were expecting for this calendar year and our overall outlook for the Permian Basin segment remains unchanged relative to our original 2020 financial guide.
There are also two wells that a customer has drilled and completed behind our Permian system, but timing of when those will be turned in line is uncertain. So they are not included in our 2020 guidance.
Our legacy areas, which include the PEO Barnett Marcellus segments generated $35.1 billion, a combined segment adjusted EBITDA in the second quarter and continued to generate strong unlevered free cash flow of $34.9 billion based on $278000 of combined capital expenditures incurred during in the.
Period.
All cash paid for capital expenditures in the second quarter for these three segments was for maintenance Capex and our legacy areas continued to provide predictable cash flow and stability for our portfolio of diversified assets.
Although our anchor customer in the Marcellus shale did not connect any new wells in the second quarter. It did recently connect nine new wells in July which should serve as a catalyst for the legacy areas in the third quarter.
This customer continues to have nine ducs and inventory, but we don't anticipate those wells to be completed or come online until early 2021.
Now turning back to the partnership.
That's a multi reported second quarter 2020, net income of $56.7 million, which was positively impacted by a $54.2 million gain on early extinguishment of debt.
Adjusted EBITDA of 64.6 million and distributable cash flow of 42.7 million.
Capital expenditures totaled $8.8 million in the second quarter 2020, a decrease of 52.4% compared to the prior quarter and included maintenance capital expenditures of 2.4 million.
Capital expenditures were primarily related to pad connection compressor station expansion and line looping projects in our Williston DJ and Permian segments.
We continue to employ financial discipline, and still expect total capital expenditures within the $30 million to $50 million range for the full year of 2020.
Regarding our double the project during the second quarter SMP make cash investments totaling $21.7 million with respect to at 70% interest in doubling and as of June Thirtyth.
All $80 million or the redeemable preferred commitment from PPG had been issue.
Only $2.8 million of small piece cash was utilized upon doubly capital calls in the quarter because the majority of us Maltese obligations were funded with net proceeds from the preferred commitment.
As Heath mentioned the double the project team continues to work diligently to find ways to reduce costs, while maintaining a safety first work environment and in service date target of the third quarter of 2021.
Approximately 80% of doubling of development costs have been locked in via service contracts and purchase orders a favorable discounts relative to the original budget.
And as a result, the estimated gross cost to complete the project has decreased from $500 million, which will set that by the in June of 2019 to approximately $450 million currently.
Accordingly, MLP is 70% share of doubly development capital has been reduced from $350 million to $315 million currently of which just over $200 million is left to be funded.
We continue to actively pursue third party financing alternatives for a substantial amount of if not potentially all of that small piece remaining doubly capital obligations.
We are targeting to have third party financing secured concurrent with the receipt of the FERC Sevenc certificate, which is still expected in the third quarter of 2020 and will provide an update to the market once that is secure.
We recently expanded the range of expected 2020 capital expenditures related to our equity investment in doubling from $10 million to a range of 10 million to $20 million in order to accommodate any potential delays with booked seven see certificate or third party financing.
While we expect to secure both the FERC Sevenc certificate and third party financing in the third quarter.
We felt it was appropriate to widen our range to include a potential delay since we are now one third of the way through the third quarter and near have been finalized.
We had $733 million outstanding under our $1.25 billion revolving credit facility as of June 32020, and approximately $191 million of available borrowing capacity due to financial covenant limitations and accrual $4.1 million Undrawn letter of credit.
In connection with the GP buying transaction, we closed on a 35 million dollar term loan from DCP that was outstanding at quarter end.
We used proceeds from the DCP loan and cash flow from operations to commence repurchases of our unsecured debt in the open market during the quarter.
And we repurchased approximately $132 million face value of our senior notes at a weighted average just kind of 42% for approximately $76.7 million in cash, resulting in a $668 million aggregate balance of our senior notes as of June Thirtyth.
Subsequent to June 30, we repurchased an incremental 5.9 million face value of our 2022 senior notes at a at an average just kind of 34% for approximately $3.9 million cash.
We also launched an exchange offer in mid June, which ultimately gave holders of our series a preferred units the opportunity to exchange each preferred unit for 200 common unit.
That transaction settled on July 30, Onest and results in the retirement of 62816 of the 300000 outstanding preferred units and the issuance of approximately 12.6 million common units subject to applicable withholding taxes.
The DPP, our receivable, which is not a line item on our consolidated balance sheet. As a result of intercompany eliminations continues to remain outstanding because it is the only mechanism available for meeting the interest coverage covenant requirement of S&P holdings non recourse term loan.
As previously discussed.
We fulfilled second quarter requirements related to this non recourse term loan and S&P holdings and compliant with all of its obligations.
We may consider a full retirement of the DPL once we no longer need as an avenue to service because non recourse term.
We also had $37 million of unrestricted cash and $5 million of restricted cash on hand at the end of the second quarter.
Total leverage at quarter end was 4.9 times compared to a maximum lemme of 5.5 times and we expect leveraged at year end to be highly dependent on the results of our continued liability management initiatives.
And with that I'll turn the call back over to heat for closing remarks.
Great all right. Thank you Mark I've looked at second quarter again, just another reminder, just how rapidly things can change in our industry and while some aspects of the market environment have improved others have worsened and we do expect the challenging backdrop to continue for the rest of the year and into 2021.
We will remain transparent and the outlook for our business has a year progress is seven will continue as we continue to collaborate with our customers on our business partners also continued to focus on maintaining operational excellence across our entire organization. Despite the added challenges associated with the cover 19.
And we remain committed to further controlling our cost and minimizing our capital expenditures, while operating safely responsibly and efficiently.
Despite the difficult market environment, we have been able to make good progress on improving our balance sheet and our overall financial flexibility.
And we will continue to execute on our comprehensive liability management strategy.
And continue to pursue other value enhancing activities, which also could include asset sales and joint ventures of our legacy in core focus assets.
So I can assure you that our management team is working tirelessly on all of these efforts and we're taking very proactive measures to pursue really all options that we can to maximize value for our unit holders. So.
So with that operator, I'd like to open the call for questions.
Thank you we will now begin our question and answer session.
You have a question. Please press Star then one on your Touchtone phone, if you wish to be removed from the Q. Please press the pound side or the hash key.
Using a speaker phone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then one on your Touchtone phone.
Please standby, while we assemble our Q.
And we have our first question from Elvira Scotto. Please go ahead your line is.
Okay.
Hello, Good morning.
Good morning, everyone.
Well I have two questions. My first question as well talk about some of your producer customer.
Bankrupt, who among cost about just overall producer bankruptcy industrywide Hello.
Provide a little more deep.
Our.
Customer credit quality, and we'll know what protection.
You may have had been clearly.
So.
Bankruptcy.
Yes, sure eight variances heat Alan.
Elaborate a little bit more I think look virtually really all of our material contracts that we have with customers. We do believe burks protected just via the dedication language and as we've seen recently and in some of the proceedings.
Gathering contracts were dedications that are.
Crop to the right way we think.
Withstand rejection.
In the bankruptcy process.
A lot of that is fact Pacific in it.
Matters, what how the languages crop in the agreements, but we've done a pretty detailed review across our contract structures and we feel confident that.
That that we have the be adequate dedication language and what you all of our agreements that provide the sop production, but usually my experienced folks that at summit in previously at Crestwood and El Paso is is that when when customers go into the into a bankruptcy proceeding well, there's always opportunity to resolve.
If any issues, particularly for your fees or.
Either.
Above market or if your fees or are at a spot that.
Maybe or prohibiting some incremental development.
We've been successful in in the case.
See bankruptcies in the Bakken to really reach what I would consider when when restructuring of the fees.
So that's that them my experience I think to the extent you can resolve it outside of the court. So I think thats always.
Preferred path for both the customer as well as the provider, but we are forced and frankly, there is not what we perceived to be a win win.
Propositions, where the customer end quarter to provider to to restructure agreement them, we're prepared to defend the language and and.
Thank you think we can be successful aborting a projection in the context for bankruptcy.
Thank you. Thanks, that's helpful and then.
Next question Jeff around.
Assets now we'll talk about we now.
Asset sales from the past that and then nothing may as well given the.
Environment, where and Rick co bed, but just wondering if there's any update there on any discussions you're having what you're seeing out there in terms of appetite for assets just any commentary would be helpful.
Yes, I look at I would describe it generally slow I think there continues to be a large degree of interest in.
The our assets, particularly those in the more Andy.
Core areas.
But I think what we're seeing here I think people fundamentally get it they understand that we're in.
Good areas of really good rock.
They look at the systems that have largely been built out have a lot of operating leverage without a lot of capital requirements going forward. So I think I think all of that screens well I think what we're dealing with that this red moment is really just the the question marks around okay. So you know when will depend them again, what kind of longer term.
Locations is going to have on demand our producer customers. What is the near term activity levels look like and even in some cases, particularly where federal lands or are impacted there. Some question mark around how the upcoming election impacts activity on some of those federal lands. So.
What I would say is I think people fundamentally.
Look at some of the asset positions that were looking to sell as a these are these are great assets in grade areas, but I just think the the churn of the near term uncertainty has has folks a little bit skittish in terms of.
Pool, and pulling the trigger and and locking in on a deal.
But I do Phil look we've we've made progress it seems like you know some days were two steps forward in something like Dapple order comes out and people kind of follows again and say well just market just too uncertain right now to try to underwrite a deal, but I'm capital quarter be very persistent about it again, we're not in a position that we have to sell an asset.
We're having success on liability management program, we're able to defer a lot of operating cash flow to to de lever, but at the right Youre comes along and I believe it will I think were.
As con persists here I think we're we're getting.
More comfortable on the operating environment that we're in we're getting will start getting more insight as to what 2021 is going to controlled in these positions and we're going to keep at it and if the right that comes along and and.
Then we are certainly position to capitalize on it to the extent it creates value for the shareholders.
Great. Thanks very much.
You bet.
Thank you as a reminder, if you had a question. Please reenter the queue by pressing Star then one and if you're using the speaker phone you may need to pick up the handset first before pressing the numbers I'm standing by for further questions.
And I see no further questions in queue at this time.
I will now turn the call over to Mr., he kind of key for closing remarks.
Great all right. Thanks, Thanks, operator, and thanks, everyone again for joining us on the call. We look forward to continue the update everyone on our on our progress both in terms of operating results and some other strategic initiatives that we have ongoing so.
Thanks, again for the time and say too.
Thank you ladies and gentlemen, this concludes our conference. Thank you for participating you may now disconnect.
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