Q4 2020 Noble Midstream Partners LP Earnings Call
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Good day and welcome to the Noble Midstream partners fourth quarter, 2000, and 'twenty earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation there'll be an opportunity to ask questions.
To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
And now like to turn the conference over to Parker career General manager of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to the Noble Midstream partners fourth quarter 2020 earnings call.
With me today to review our results is Robin fielder, President and CEO and Tom Christiansen CFO.
Following our prepared remarks, we will hold a question and answer session here to participate and the question and answer session. We also have John <unk> Senior Vice President of business, and corporate development and Air and Carlson General Counsel.
This morning, we announced fourth quarter, 'twenty and 'twenty results as well as full year 'twenty 'twenty one guidance.
The press release and supplemental slides are on the investors section of our website and B L Midstream Dot com.
Upon filing later today, our 10-K will be made available on the same location.
As a reminder, today's discussion will contain forward looking statements and certain non-GAAP financial measures. Please refer to our latest news releases for non-GAAP reconciliations as well as our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those and the forward looking statements.
At this time I'll turn the call over to Robyn.
Thank you Mark and good morning, everyone.
First I would like to address the nonbinding proposal from from partnership received from Chevron to acquire the remaining public LP units at noble midstream.
And the electrical and has delegated authority to the conflicts committee comprised of our three independent board members to negotiate the terms and the proposed transaction on behalf of the unaffiliated noble midstream unitholders.
The proposal is subject to the negotiation and execution of a definitive agreement as well as approval by the board of directors of the general partner.
There is no guarantee that any transaction will result, and while this is ongoing we are unable to comment about a potential transaction and we'll continue to run the business as usual.
Turning to what we reported this morning, 'twenty and 'twenty was a dynamic year for our world industry and company and unprecedented times, we quickly instituted new procedures to protect the health and safety and my work force, while adjusting our 'twenty and 'twenty program to accomplish both operational and financial goals.
I am incredibly proud of these efforts of our team and swiftly adapt all while successfully integrating our business and to a new majority owner and affiliate and Chevron Corporation.
And January we were happy to report that we hit the ground running and the new year announcing our first new commercial development agreement with our affiliate and the D J basin.
Over the last couple of years, we have made several key decisions to enhance our portfolio improve our cost structure strength in the business and minimize our environmental impact.
Since 2019, the partnership has added a place into service five pipeline.
These additions to the portfolio diversify our business and are expected to provide long term stable cash flows.
We anticipate our equity investments comprised nearly 20% on my earnings in 2021, roughly doubling their contribution year over year.
During 'twenty and 'twenty, we rapidly responded to the changing market landscape, eliminating roughly $150 million or <unk> 70 per cent of our capital expenditure from our original plan.
In addition, we cut approximately 25 per cent out of our operating costs.
And more than $20 million and annualized expense.
Along with our extensive gathering backbone and all of these accomplishments and actions have transformed our business and enabled noble midstream to be one of the handful of midstream entities to generate free cash flow last year, which we first accomplished during the second quarter.
We ended the year with nearly $50 million and free cash flow and expect to grow this again in 'twenty and 'twenty one.
At noble midstream, we have a commitment to personal and process safety, while efficiently constructing and operating our assets.
Over the last couple of years, we have made significant health and safety improvements, reducing the total number of recordable incidents, 30% since 2018, while also decreasing severity.
And 'twenty and 'twenty was a banner year for noble midstream environmental performance with a greater than 50 per cent reduction and flaring volumes across our Permian asset.
As well as a 90 per cent reduction and volume of unintentional releases and spills.
And total fees accomplishments helped us reduce our greenhouse gas intensity and eliminate nearly 80000 metric tons of methane and other carbon dioxide equivalent from the environment.
Also in 'twenty and 'twenty, we enhanced our ESG disclosures and working with our parents to incorporate noble midstream impact and to noble energy and sustainability report.
With plans to build upon that and disclosure this year.
Further we are evaluating lower carbon initiatives and projects that can reduce our environmental impact and provide accretive business opportunities for the partnership.
Looking back on fourth quarter customer activity, we saw completion crews return and both the DJ and Permian basins and across on dedicated acreage.
New all connection activity helped to arrest declines and provides operational momentum into 'twenty and 'twenty one.
The partnership connected more than 50 wells during the quarter and.
And from full year, 2020 oil and gas gathering volumes were roughly flat, despite shorter term and customer production curtailments, and a 40% reduction and well connection activity.
Okay.
Looking to 2021 noble midstream has the infrastructure in place and both base and to accommodate future gathering and transportation volumes.
Following us to deploy highly efficient well connect capital.
We are anticipating moderate and development activity with ongoing commodity price uncertainty yet have sufficient capacity on our system for the next couple of years and do not see any large scale infrastructure needs to support higher growth.
Across our acreage dedications, our customers have a significant backlog of approved permits.
When coupled with our minimal federal land exposure and long term gathering agreement, we have good line of sight to well connect inventory for the next few years.
This year and most of our affiliate activity will be focused in the D. J basin within the Mustang development area.
And our third party business, we anticipate slight growth well connection activity on black Diamond gathering as well as an increase and our Delaware Basin and third party activity.
For the year, we anticipate 2021 activity and based on development to be heavily front half weighted.
First quarter connection activity is expected to be nearly double the levels from fourth quarter 2020.
Finally, before I turn the call over to Tom I want to express my appreciation and gratitude to the entire noble midstream workforce for their continued dedication to operational excellence and financial discipline during a volatile 2020.
All while overcoming many challenges the COVID-19 pandemic presented.
And over the last several years, our teams have worked tirelessly to diversify and shrinking the portfolio day.
Priest, our carbon footprint and enable the partnership to deliver leading safe and reliable midstream solutions for which they should all be very proud.
With that I will now turn over the call to our CFO Tom Christiansen.
Thanks Robyn.
First for our financial results and.
Adjusted net EBITDA was $95 million during the fourth quarter flat sequentially, driven by new and renewed activity on our acreage and a four fold increase and freshwater delivery volumes and.
And the last three quarters of 2020, we were able to maintain relatively stable EBITDA, which is a testament to our continued excellent performance of our team.
During the fourth quarter, we spent $7 million on organic capital projects. This marks our third consecutive quarter spending less and $10 million.
And organic capital.
And illustrates our ability to flex capital spending to adapt to changes and producer activity.
Additionally, we invested 23 million into equity method investments during the fourth quarter to from the expansion of the epic crude marine terminal as well as the raw NGL pipeline projects related to ethics and single joint venture.
2020 saw the completion of these five major projects and as a result, our investment related to EBITDA has strengthened and the back half of the year.
Now to dive a little further into our individual investments.
That's a crude came online and people and has ramped steadily despite a volatile crude market.
With minimum volume commitments underwriting and face throughput and dedicated operators restarting and completion activity and the second half of 'twenty and 'twenty, we expect higher volumes and 2021.
That's Y grade came online and me and the Investor Group commissioned its first Greenfield fractionator and July bringing total fractionation capacity to 180000 barrels a day.
Volumes have grown through the back half of the year and we expect this to continue into 2021.
As you May recall, we completed our saddle horn and the acquisition through Black Diamond and during the first quarter.
This was our largest investment during 2020.
Has recently completed its expansion from 190 to 290000 barrels a day.
For which we have no incremental capital costs.
I don't want pipeline is backed by minimum volume commitments from high quality producers, which has made it a consistent source of distributed distributions to the partnership.
Next our Delaware crossing me and line was completed during the year.
This asset further enhances our positioning and the southern Delaware basin by expanding our gathering footprint and providing us access to the win column.
Lastly, we recently announced a new arrangement with a subsidiary of Chevron to transport oil from their wells ranch acreage to plateau.
And this 10 year dedication went into effect on January 1st of this year.
Provide this service we leased the Wattenberg oil trunkline, which previously transported these barrels.
This structure and made this a cost effective and operationally simple transaction for the partnership.
These types of high return projects not only enhance the quality of our cash flows but also allow the partnership to participate further down the midstream value chain.
<unk> can now offer services from wellhead to water and the Permian.
As well as providing our DJ customers highly competitive transportation rates to Cushing.
We are proud of the team for their recent accomplishments and are excited to have these investments and service.
Now turning to liquidity and leverage.
For the fourth quarter, we held our distribution flat at 18 and three quarter cents per unit.
We ended the quarter with $1 6 billion and debt and 456 million and liquidity.
The partnership has a 500 million dollar term loans expiring on July 31 of this year.
We expect to pursue a low cost shorter duration.
<unk> such as a term loan extension.
This approach will position us well should we pursue a more fulsome refinancing later this year.
During 2021, we expect to see our asset base and investment portfolio generate material free cash flow.
In fact, we plan to generate enough cash to fully from the LP distributions and pay down and material amounts of debt during the year.
Now moving on to 'twenty 'twenty one guidance.
Yeah.
2021, adjusted net EBITDA is anticipated to be between 360 and $395 million.
This is slightly lower at the midpoint year over year due to the activity mix and higher operating costs due to discretionary project deferrals and moving from 2020 into 'twenty and 'twenty one.
We expect to see producers continue to take a more measured approach to developing their assets since many producers' capital budgeting was late in 'twenty and 'twenty when the commodity price environment was much weaker.
This slowdown should be largely offset by the full year contributions of our recently completed pipeline investments.
To the extent that we see an acceleration of customer activity, which we are currently not guiding to our existing assets position us well to support our customers without major infrastructure investment.
As Robin mentioned, our total capital has trended down significantly over the last couple of years and we anticipate total capital spending of approximately 100 million and for 2021.
Due to chevron's development, focusing on the Mustang area. Our capital program includes roughly $30 million to build out another trunk line. During the second half of this year ahead of the activity.
Even still we expect to generate $185 million to $220 million and free cash flow next year.
And for 'twenty and 'twenty, one and we expect to average three six to 4.0 times net debt to trailing 12 months EBITDA.
And the first quarter, we anticipate adjusted net EBITDA of $94 million to $100 million on.
On higher yeah.
Gathering volume sequentially. This is due to the fourth quarter connections as well as the step up and freshwater delivery volumes as customers hit the ground running and the new year.
We expect EBITDA for the first half of 2021 to be relatively flat compared to the back half of 2020.
And we anticipate that the lower producer investment on our acreage will cause the back half of 2021 to trend slightly weaker.
In summary, our business continues to perform well in this environment.
We continue to operate our business prudently and remain focused on safety environmental stewardship and cost discipline.
<unk> remaining focused on capturing additional opportunities to create value for our investors.
Now before I turn the call over for questions I would like to mention that during Q&A, we will not be able to discuss the offer recently made by Chevron.
With that one caveat I will open the call for questions.
Yeah.
I will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Our first question today comes from Spiro <unk> with credit Suisse.
Hey, good morning, everybody first.
First question is on the guidance I was hoping you guys can provide a little bit more color on what it's going to take to achieve the high end and the low end of that range and I ask in the context of it and it seems like producers if somewhat set volumes and stone this year.
Kind of regardless of what the commodity prices. So just curious where you see the largest pockets of variability and that guidance.
Hi, Good morning, Thanks for the question I'll start with this and see if anybody else and wants to hop in.
And.
And you know and as we've looked back most of our customers were putting together their budgets late last year and and as you pointed out we certainly seen them.
And more supportive commodity price environment, and what we've rolled and especially with what that activity set looks like and those development plans as we had them and hands on went into our board for a budget approval.
And one thing I'll say is we're certainly well positioned with our existing infrastructure and facilities and should we need to ramp up and we certainly demonstrated last year, if we need to pull back anything we can do that as well.
So I think a lot of it will just be dependent on changes and activity, that's where our focus and if this year most of our investment and just well connections and as Tom just pointed out building up that and extra and when you do James we continue to develop those large comprehensive development plan areas.
Got it and and Tom on to follow up on something you had mentioned I think you had talked about cost shifting out of 2020 and into 'twenty and 'twenty, one and that was driving some of the I guess year over year and downside movement and just curious if those costs have not shifted into 2021, if we if we sort of assume a normalized.
Scenario, where we're not shifting expenses I guess, what would that have done to the EBITDA range I'm not sure. If you can give us a sense of how much that was.
It likely wouldn't have impacted the EBITDA range and a major way just wanted to highlight the uptick and cost just so that it was clear that it's not a structural shift it.
More so just activity due to our kind of belt and suspenders cost cutting last year.
Okay got it and just last quick one if you don't mind just on the shape of volumes throughout the year. It looks like you're targeting about 250 to 300 and Ah well connections and I think yeah. I guess when you look at the activity. It looks like that is front half weighted I think you all said that if you look at the free cash flow guidance for first quarter actually.
It seems to be a larger proportion of the year, then and kind of evenly spread out and and Tom I think you mentioned and I sort of closing remark there at the back half of the year is going to be a little bit weaker just just curious if you can walk us through where the biggest batch of spending are and what the volume shape looks like as we go through the year.
Yeah, I think and provided some color there certainly the activity.
From our sponsor is focused and the Mustang area.
And.
We will see some significant volumes there are big piece of what we're laying out in front of us I referenced the trunk line related to Mustang It will.
And we'll build that in advance of those volume slowing we expect those in 2022. So that's why you're going to see the first half stronger than the second half.
But specific color around you know the exact shape of it certainly can't provide too much beyond what I said in my script.
Script.
Understood. Thanks, Rob and thanks, Tom I have a good weekend.
You too Sir and thanks for.
Our next question comes from Jeremy how name on it.
Oregon.
Hey, Good morning, guys. This is James on for Jeremy.
And then.
How are you doing just.
Just I guess off Spiro's question on on the line connection guide.
It looks like maybe 50, well connections our budget for Chevron.
And for 'twenty, one can you provide the split between the DJ and Delaware, there or is that you know.
Almost all D J and I guess on the same thought.
And it looks like chevron's running running one rig in the base and right now.
Is that pretty much consistent with what you're expecting to do for 'twenty one here.
Hey, James This is park I think it should be intermittent and through the year. If you look at our press release, we have some more detailed connection guidance, but.
And kind of lay out for you what the the Mustang telco and as I think the kind of broad remainder of that is going to be Delaware connections per the year.
Got it Okay and then it looks like January was a pretty strong month.
40, well connections there.
Was that part of the budget or is that.
And within your extrusion and post your budgeting.
And we can't dive too much into what the quarter looks like so far but I think what we laid out as is inclusive of what first quarter will be so.
Okay Fair enough and then last one from me and previous slide decks, you guys have the pie chart of kind of a third party activity and you know looking ahead to 'twenty, one and do you expect that to.
Be a larger portion of the pie going forward just given and.
Chevron activity and and.
Versus third party waiting.
Yes, most of that with Robin and it is a slightly larger pie is as we continue to bring more volume from some of our our news and systems, including some of the joint venture and pipes as well.
And so that that wedge is growing slightly year over year.
Got it.
I'll stop there I appreciate the questions.
Yeah.
Makes sense.
And our next question comes from Dan cell line with Simmons energy.
Yeah, Hey, thanks for taking my question today.
So I'm really wondering if this was more towards for Tom but you.
And your thoughts on free cash flow allocation and you know what that looks like into 'twenty. One is this primarily going to be for debt reduction and similar to what we saw in Q4, and then what would the cadence look like that going forward. Thanks.
Yeah.
Thanks.
And yeah, certainly from capital allocation protecting the distribution is important to us.
And providing a good cushion of safety and behind that we also or kind of that first dollar certainly is going to go to hit our long term three times debt targets or you.
You know focus really on our balance sheet and the near term.
Alright, Thanks, that's all my.
Yeah.
And if you have further questions. Please press Star then one can join our queue. Our next question comes from Amar Sheth with all with partners.
I hope you're well.
Yeah. My question was about the the epic pipeline projects can you guys.
Talk to you the progress there and and getting those pipelines up to capacity and then I had a follow up as well.
Hi, This is John over here, yes. So both both ethics are largely complete now as you can see from our guidance and significant capital investments are now largely behind us and we're looking forward to full year of operations for both projects on.
And on the epic crude side, specifically, we're probably seeing something a bit more flat going forward given that we guided and a different commodity price environment and on the epic Y grade side as Tom alluded to we do see some grow.
There, but we're excited to have these pipelines now as a full year of our projections and we're excited about what those pipelines have for us and the future.
Mm Hmm okay.
And then I guess my my follow up question I know you guys do not want to discuss the recent offer made by the majority shareholder.
But.
We are a we are a relatively small minority shareholder.
And I was just wondering are we gonna be given and option opportunity to vote on the transaction. Once if there is a transaction.
And.
Or and offer made a formal off from it.
And while I appreciate the question and and your interest in us.
And just a quick recap as we mentioned before we obviously received a take private proposal from Chevron on February 5th and has delegated and the evaluation through our conflicts Committee and I mentioned in my prepared remarks, it's our if our three independent directors and.
And while that's ongoing and it's it's really difficult for us to comment on anything and and just as a reminder, there's really no guarantee and transaction well and will consummate concluded as well.
I don't know that we can we can guide you on anything else beyond that at this point.
Okay. Okay.
But you're not if you're not sure if minority shareholders will be given an opportunity to vote.
Okay.
I don't think we can comment on Maryland.
Yeah, we're just getting that process kicked off.
This concludes our question and answer session and I would like to turn the call back over to Robin fielder for any closing remarks.
Yes, Thank you and I just wanted to say thank you all again for your continued support and please stay safe and healthy out there.
Great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.