Q3 2020 Enable Midstream Partners LP Earnings Call
This time I would like to welcome everyone to the enable midstream third quarter 2000, <unk> earnings conference call them, what kind of Oh.
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After the speakers remarks, there will be a question and answer session.
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I would now like to turn the call over to Mr., Matt Beasley Senior director of Investor Relations.
Thank you Mr. Beasley. Please go ahead. Thank you and good morning, everyone presenting on this morning's call are rod sailor, our president and CEO, John laws, our Chief financial Officer to.
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 question earlier. This morning, we issued our earnings press release and filed the form 10-Q with the FCC earnings press release form 10-Q filing and the presentation that accompanies this call are 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 and a discussion of factors that could cause actual results to differ from projections can be found in our SEC filings.
Also be referencing non-GAAP financial measures on today's call, which we have reconciled to the nearest GAAP measures in the appendix of today's presentation.
We invite you to review the disclaimers in this presentation 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 I would like to begin my remarks on slide four with a few high level business update as you may recall from our last earnings call.
The impact from shut in production this year has been less than we anticipated.
Pleased to now report that all production that was offline due to depressed commodity prices is back online in our transportation and storage segment. We recently received the Fercs environmental assessment.
Ron pipelines, the key milestones for that project.
Earlier today, we released our inaugural sustainability report demonstrating our commitment to transparency and sustainable business practices I plan to share some highlights from the report with you at the end of todays call. Our COVID-19 safety protocols remain in place and we continue to monitor local state and federal.
Guidelines and recommendations from health organizations to date, the pandemic has not impacted our ability to maintain safe and reliable operations. Finally, I want to once again emphasize that we continue to benefit from our significant scale diversified assets integrated systems unique markets loose.
And a strong base of firm demand driven transportation and storage contracts.
I will now cover a few financial highlights on the next slide.
Due in part to lower than expected impacts for producer volume could tell much. This year I am pleased to report that we now anticipate performing in the upper half of our previous 2020 outlook ranges for adjusted EBITDA and distributable cash flow if it works for the non cash impairment of our investment in the sex joint venture we.
I would have expected to perform in the upper half of our 2020 outlook for net income due to our business performance and the actions we took to reduce distributions capital and operating costs in response to the industry downturn earlier. This year, we have seen DCF exceed distributions by 293 million, allowing us to.
We fund our expansion capital program or decreasing total debt by almost $100 million, we remain focused on the aspects of our business that we can control, including our cost structure. Our progress on cost reduction initiatives include annualized savings of 21 million for aligning our organizational structure to.
The current industry environment, including the impact of planned retirements and eliminating open positions 14 million for producing rental compression and treater assets and 2 million from optimizing our processing fleet by putting plants in standby operations and implementing cruelest operations in select plants.
We look forward to 2021, we remain focused on capital discipline and will continue to prioritize contracted long term transportation and storage projects in contracted capital efficient gathering and processing projects finally, well some producers have faced credit challenges in the current commodity price environment, we have not.
Not experienced any meaningful credit losses. During this cycle now turning to the next slide enables golf run pipeline project is a key energy infrastructure projects, serving growing LNG markets. The project is backed by 20 year commitments from Golden pass LNG, a joint venture between cutter petroleum and Exxon Mobil.
The project will help add to the global supply of LNG, which should support the displacement of higher carbon intensity fuels worldwide. We continue to advance the project and just last week on schedule. The FERC issued the projects environmental assessment, we anticipate finalizing the project scope and for.
Dancing plans in the coming months and we continue to believe that we will have a number of financing options for the project given its firm demand driven revenues and strong customer base, turning to our transportation and storage commercial highlights on the next slide the segment continues to benefit from its firm fee based contracts.
And the segment is anchored by large investment grade utilities are integrated systems serve as a crucial link between supply and downstream markets and we continue to have success contracting capacity through September we have contracted or extended almost 1.5 million Deco therms per day of transportation capacity.
With an average volume weighted contract life of over five years on our EGPC system. The mass project has received all required regulatory approvals and construction has begun the project is backed by a further five year commitment for 100000 Dekatherms per day, and we anticipate place.
We get in service in the second quarter of 2021 on our MRT system. The southbound expansion project is in service and the project is backed by a further five year commitment for 80000 Dekatherms per day. Finally, despite recent contract expirations are SESH joint venture with Enbridge remains a critical.
Artery, serving utility markets in the southeast turning to our gathering and processing commercial highlights on the next slide as I mentioned in my opening remarks, we have seen all production that was shut in due to depressed commodity prices come back online and we have experienced no noticeable production performance degradation from.
These wells producers remain active on our gathering footprint with six rigs currently drilling wells expected to be connected to enables gathering systems substantial DUC inventories have been built behind both our Anadarko and Williston basin systems with approximately 175 ducs between both systems. These days.
Dogs provided inventory of wells with the lower economic hurdle to be completed because they do not require drilling capital investment on our Anadarko crude oil and condensate gathering system. We recently completed an extension of that system into Mclean County, Oklahoma, increasing the systems reach and ability to add.
New customers in the Haynesville shale significant increases in natural gas forward curves should benefit our producers in the play and further support continued drilling activity. Finally, we added a new customer to our Williston basin system and recently completed the connection to a seven well pad for that customer I will now turn the call.
All over to John to discuss third quarter results. Thank.
Thank you Rod and good morning, everyone I'll 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 in our third quarter earnings release in our 10-Q.
Both of which were released earlier this morning.
Turning to our operational performance overview slide our natural gas gathered processed and transported volumes saw decreases compared to the third quarter of 2019, primarily as a result of lower gathered volumes across all basins inclusive of continued producer shut ins in the Anadarko basin that ended.
Third quarter, our crude oil and condensate volumes increase compared to the third quarter 2019, as a result of higher production in the Anadarko basin offset by lower production in the Williston basin, turning to our financial results on the next slide we saw lower revenues gross margin and net income for the third.
Third quarter of 2020 compared to the third quarter of 2019, primarily as a result of lower volumes and lower prices, while net income benefited from lower owing in DNA expenses and lower interest expense as Rod mentioned earlier net income was impacted by a noncash impairment of our investment.
In our second joint venture adjusted EBITDA and DCF for both lower for the quarter compared to the third quarter of 2019, primarily as a result of lower volumes and lower prices, partially offset by lower own mdna expenses.
Adjusted EBITDA and DCF exclude the noncash impacts from changes in the fair value of derivatives in the session. Paramount DCF also benefited from lower adjusted interest expense and lower maintenance capital expenditures for the third quarter. After considering the distributions declared enables.
Distributable cash flow exceeded distributions declared by $75 million fully funding our expansion capital expenditures for the quarter well. This year has had some unexpected challenges. This was yet another quarter of continued execution for an April as Rod mentioned earlier, we now expect to achieve the upper.
Half of the outlook, we provided during our first quarter 2020 earnings call for adjusted EBITDA, and DCF and excluding the third quarter 2020, noncash impairment of our session investment enable would've expected to achieve the upper half of our net income range. The business has generated so.
Nitpicking cash flows this year to fully fund our distribution in capital program, while reducing total debt levels and we remain focused on further optimizing our cost structure and aligning it with the industry environment with that I will now turn the call back over to Ron.
Thanks, John as I mentioned in my opening remarks, the naval issued its inaugural sustainability report earlier this morning.
You can find the report under the sustainability section of our website at enable midstream dotcom sustainable business practices are deeply embedded across our business and we have a long history of operating in a safe efficient and responsible manner at enable part of our mission is to partner in the success of our employees.
Customers investors and communities as you read a report you will find just some of the ways enable has demonstrated and continues to uphold that partnership commitment. Some of the reports highlights include our conservation efforts for vulnerable species, including enables participation in the American bearing beetle oil.
The gas industry conservation plan. The species that was recently down listed from a danger to threaten status enables award winning integrated vegetation management program, along our rights of way our pipeline inspection program that inspected almost twice the miles of pipeline in 2019 as required by car.
Current regulations the commitments, we have made to minimize methane emissions across enables operations. The incas methane emissions commitments community partnerships, including enable safety partner program honoring first responders a program to build or refurbish community basketball courts in a program to support.
Stim focused educational initiatives, we also support community organizations by offering our employees 16 company paid volunteer hours each year in 2019 enable employees recorded over 22000 volunteer hours, including over 15000 company paid hours finally.
Our comprehensive contractor safety initiative has helped contribute to a reduction of reported contractor incidence from 22 in 2015 to three in 2019.
We aligned the report with the voluntary sustainability accounting standards board or sales be reporting standards for midstream companies, allowing for better comparisons of enable sustainability performance I am proud of our teams work on our inaugural report, but know that this is only one more step on our side.
Sustainability journey, we welcome your feedback and look forward to updating you on our progress before.
Before we open the call up for questions I wanted to say that management will not be commenting on strategic alternatives for enable since Centerpoint announced its business review there has been published speculation related to possible actions by both sponsors. It is not the first time, a sponsor has announced such a review or that has been reported.
That they are considering options with respect to their ownership interest in us over the years since our formation as has been the case over that period, we have declined to comment on such reports and we continue in that tradition today.
We will now open the call up for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before approaching the keys.
To withdraw your question press the pound key.
We will pause momentarily to assemble our roster.
Your first question comes from the line of Jeremy Tonet from JP Morgan Your line is open.
Hi, good morning.
Hey, good morning.
Just wanted to start off with SESH here, if I could.
Just wanted to see what factories.
Fed into the impairment now and just updated thoughts as far as re contracting is concerned on the pipe and.
How you think about.
Discounting or what approaches you might take to kind of secure contract.
Aaron have contract tenor.
Would makes sense and then the you know the debt at the JV level as well. So just wondering how you think about that.
Leverage there is the debt cheap enough to to buy in would that make sense at all to reduce leverage just any of these different.
Factors would be helpful for your thoughts.
Yes, Ron you said I'll start with.
So the first question on specialty contracting and again, we had a large contract roll off but but again, we still expect to enter into discussions.
That and other Counterparties about re contracting so I don't think it's appropriate to really talk about anything other than again, we expect.
As I said in my opening.
My opening remarks, we think sessions is a vital piece to the transportation order.
Artery into the continuing growing Florida market. So we again, we continue to expect.
The realized value on contracting there I'll turn it over to John to maybe talk a little bit about the other part of that question, Yes sure Jeremy It's John just a follow up there I think the Dr. Robert to the impairment now.
Really do relate to the timing of the re contracting.
And when when we believe some of that might take place as you know that that contract that slosh rod alluded to rolled in.
In early September.
Not re contracted all that capacity just yet.
And as you said, we're in we're in the midst of doing sales, but the accounting rules I really do require you to look at things on a on on a basis that does contemplate some of that timing and with with our our view of those accounting rules.
And now he's interpret it does that's what that's what drove the timing for the impact.
As it relates to.
As it relates to the debt the debt to such level.
That's really not anything that we thought about doing anything with here in the near term those notes do not mature until 2024.
Got it and just want to clarify.
Clarifying the point as far as our re contracting did you have you guys re contract that any portion of it so far that rolled.
We are in the midst of re contracting we've done some short term things here.
And we're in the midst of of re contracting some things now that.
We'll leave it at that.
Got it that's helpful. Thanks and.
Just wanted to see what what your Crystal ball might say as far as 2021 is concerned and really thinking more on the natural gas side. We've seen some you know some good strength into 21 with the strip there. So it seems like that could be a levels that could incentivize. Some some activity across parts of your footprint. So anything you can share with us as far as pretty sure.
But these are what you're seeing out there, particularly on the gas side or or even on the rest of your footprint as well any any color would be helpful.
Yes, Jeremy it's John I'll start and then.
Have others.
Come in here as well. So you look I think what you've observed here and gas trip has certainly been something that.
Well, we've been very interested in I think as we continue to have dialogue with our producers.
Particularly those that said at more gas exposure dry gas exposure.
Content continues to do either interest just last quarter in the architects that we reported record volumes on that system.
That are there and so we continue to be encouraged by the activity that we've seen in some of the leaner gas or dry gas areas.
As well as what the strip and the curve is showing for some of these producers on a go forward basis. So look I think in terms of current rig activity.
We reported six rigs running.
Across our footprint today.
You know, we expect those to continue to.
To run in the Ducs that we have in in and across our footprint in the Anadarko.
We expect the economics here to continue to support.
Support activity on a go forward basis, but.
We'll wait and see how producers.
You know evolved and finalize their plans as they roll into completing their budget season here.
Here over the next couple of months.
Got it that's a that's helpful. One last one if I could just you.
With that I think on slide five you talked about cost reductions here and just wondering how are you.
If I'm thinking about sustainability of that into 21 or other opportunities. There just any thoughts on that would be helpful.
Yes.
Jeremy we've made really good progress on the goals that we announced in early April.
For 2020, we are on track there and expect to continue to be on track to meet the goals and objectives that.
That we had set for ourselves in the company.
Early April.
Got it I'll stop there. Thank you.
Thanks, Karen.
Your next question comes from the line of should be able to serve all from Seaport Global Your line is open.
Yes, hi, good morning, guys and thanks for taking my question.
Just to follow up on.
Yes.
How should we be thinking about the distributions from cash flow.
Any kind of restrictions in terms of the debt structure that.
What im distributions that you see.
On that entity.
There are no restrictions per se at the entity.
To think about in the distributions on a go forward basis will continue to be a function of.
The entities free cash flow.
Okay. So then it noticed it didnt covenants.
Oh gosh, there right no that's correct.
Got it thanks for that and then just.
Broader question.
We've seen a fair bit of.
Upstream consolidation in and.
Man, which is probably could accelerate in other basins to how do you.
Yes, it positions principally in the mid con.
To that end.
More specifically with regard to the midstream consolidation do you see any opportunities for enable thanks.
Yes, as Rod I'll pick that up again, yeah, we've been watching the upstream.
Solid nations look there are a number of smaller less well capitalized companies along our footprint.
Specifically in the Anadarko.
Not be surprising and we would expect some consolidations just based on forward strip that I think the need for everybody to think about cash flow costs.
Those things so would not surprises to date, we haven't seen anything thats been have an impact on our color on in any of our system.
As you talk about midstream consolidation, we have said in the past that we believe that scope and scale matter on the midstream side of the business and that will likely lead to some consolidation probably starting with some of the smaller and private players I will continue to watch.
That environment.
Again stay.
Stating, we do believe scope and scale matter.
Midstream side.
Okay got it thanks.
Your next question comes from the line of Gabe Moreen from Mizuho. Your line is open.
Morning, guys quick.
Quick question on our Gulf Ron can you talk about.
How negotiations or discussions are going with potentially attracting third party volumes for that project and then maybe you can walk us through the timeline there in terms of capital spend.
21 versus 22 and beyond just how we should be thinking about that.
Yeah as it relates to I'll take the first part of that question, you'll get as it relates to commercial discussions I hate to sound like a broken record, but we've continued to have a number of discussions.
Counterparties.
Clearly in this environment.
Those discussions have been somewhat muted we've continued to move along with our plan and we'll evaluate it.
You know, we're evaluating a number of potential financing options.
Both with financial and strategic players that will also lead us down the proper the proper scoping of that project in the in the near future Jato, what do you want to add anything yeah, No I think that's right and gave ultimately they.
Total quantum of Capex will be a function of.
The finalized scope.
But as we've said in the past and with that.
With a late 22 early 23 start date, you know, it's not a particularly long way of pipe.
So we would expect that most of that capital would probably be concentrated in the second half of that build cycle. So you kind of thinking for 21 and 22.
I would expect we'd see more of that capital money.
Majority of that capital show up in 22 as opposed to 21.
Thanks, and then if I can follow up on Mr.
Shifting to the oil side of things just what you're seeing from completion crews there with Ti trading where it is your outlook do you think you know in terms of DUC completions, you can be flat from here into 21. So just just curious there.
Yeah, we won't get too much into a expectations 21 as a mentioned.
Really important for us there to hear from the producers and and they are finalized budgets, which is a process that they're going through.
Here at the moment.
I think what we intended to do is show you a little bit about how we think about.
The inherent backlog that's there in terms of the Ducs that are on our system and you can see that there are a substantial number of ducs out there that we reported in each of the Anadarko as.
As well as the Bakken and so you know that's that's ready inventory that's out there and available for producers to complete.
In a lower lower bar from a commodity price standpoint, and then all in.
Half cycle return economics that are there and available so we see inherent capability.
In terms of what's out there.
In terms of the Ducs that are out there to come online and had good volumes the system, but.
We just unfortunately need to leave it at that for the moment is as it relates to 21.
Thanks, Don and then not the probe forget on 21, but a two part question on Capex can you talk about where you think you might at upcoming and on the growth Capex side of things for 20.
And ex Gulf fraud is there any reason to think that growth capex for 21 should be different than the range you've laid out for 20.
One comment on 21.
Gave the thanks for the thanks for the preface it there.
Look I think on a you know.
On Capex, we have not pointed specifically you know to to a spot in the range there, but we're doing everything that you would expect us to be doing in terms of optimizing the capital spend.
That will have a show up in 2020, and again prioritized around those things that Rod mentioned, which are you know our committed transportation and storage projects that we've got underway and.
Good returning in a capital efficient gathering and processing.
Arrangement that we have with producers that are bringing volumes online system.
Thank you.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. The Star then the number one on your telephone keypad to ask your question. Your next question comes from the line of Thermo from Wells Fargo. Your line is open.
Hi, Good morning, Thanks for taking the question just one from me could you maybe talk about ethane recoveries across your system. It seems produced NGL volumes the increase from the prior quarter and part of this is driven by the higher processing volumes across your system, but I presume. Some of the increase is also a funky.
Of ethane recoveries, so any thoughts there.
Yeah, No no I think Thats why we did it we did see some higher recovery.
Of ethane in the quarter and.
No look I think that that's that's something that on our system and we have the ability to flex into and out of it.
Thing recovery really as it relates to.
To our plant.
And what we see across the system you know I think as we've seen gas gas prices and gas prices strengthen.
See a little bit of ER.
MP fall off we may see something different.
In the fourth quarter, but we did see and have seen throughout the course of the year.
Loading into and out of ethane rejection and recovery.
Thanks, that's all I had.
Thanks, Ed.
This concludes our question and answer session I would now like to turn the conference back over to Mr. seller for any closing remarks.
Thank you so much for joining us on the call today.
Closing I want to recognize our employees for their hard work dedication and continued focus on safety. During these challenging times I think everybody on the call again for your interest in enable and I Hope you all remain safe and healthy please have a great day.
Thank you for attending today's presentation. The conference has now concluded you may now disconnect.
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