Q1 2021 Altus Midstream Co Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin shortly.

Please continue to standby and thank you for your cash.

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Ladies and gentlemen, thank you for standing by.

And welcome to the Altus Midstream company first quarter 2021 earnings call.

At this time all participant lines are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during this time, we will need a press star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your first speaker today.

Mr. Patrick Cassidy. Please go ahead.

Good afternoon and.

And thank you for joining us on Altus midstream company's first quarter financial and operational results conference call.

We will begin the call with an overview by Altus midstream CEO and president Clay breakfast.

And Ben Rodgers CFO will summarize our financial performance and outlook.

Our prepared remarks will be approximately 10 minutes and like with a a.

Remainder of the call a lot of for Q&A.

Remarks during the call May also refer to the Altus midstream investor presentation, which can be found on our investor Relations website, and altice midstream dot com forward slash investors.

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

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

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

However, a number of factors could cause actual results to differ materially from what we discuss today and.

A full disclaimer is located with the investor presentation on our website.

With that I will turn the call over to clay.

Good afternoon, and thank you for joining us today for Altice Midstream first quarter 2021 conference call.

We entered the year with very positive momentum and have been able to maintain this as we've advanced into the second quarter.

Yesterday, we issued our earnings release, and we are on track to meet or exceed the midpoint of the performance. We guided to last November even with the severe freezing weather, we all injured and February and the other challenges related to our business.

I'm, especially pleased with the execution of our team.

And I'll note a few of the milestones accomplished during the first three months a this year.

This was our first quarter with all four JV pipelines and service.

We also achieved our first full quarter and once we were free cash flow positive.

Operating costs decreased for the seventh consecutive quarter and Altice paid its first cash dividend in March.

Altice is a unique midstream competitor.

We are a pure play Permian basin to Gulf Coast Midstream company we.

We own equity interest and for Premier long haul pipelines that transport oil gas and natural gas liquids out of West Texas comp.

Complementing this we operate state of the art gathering and processing assets, which provide cleaner more efficient product recoveries.

And these drive improved net backs and are aligned with the industry's increasing focus on ESG initiatives.

We have a proven record of exceptional execution as a results during the first quarter further demonstrate.

A major event during the quarter was a February freeze a disrupted our operations and JV assets over a 90 day period.

While the harsh weather testing facilities and field crews broadly speaking the favorable impacts offset the unfavorable.

Ben will address guidance and his remarks, but I would note that we expect no material negative impact on our annual adjusted EBITDA guidance range as a result of the winter storm.

As noted in previous Investor calls Altice has a fixed price power contracted affords us the option to shed load and sell excess power back to the grid.

During the storm all of this was able to sell power generating incremental income that offset lower throughput and our assets and operations.

Impacts from the storm were temporary and the pipelines were quickly brought back to pre storm service levels.

All forward JV pipes, and the gathering and processing facilities, our newly built with experienced operators and the quality of these assets and expertise of the crews working them also helped to mitigate the negative impacts of the storm.

Before moving on to the business review and want to acknowledge the many individuals who did an impressive job keeping operations online and particularly difficult weather conditions and I recognize they conducted this essential work, while dealing with their own challenging circumstances at home.

And our gathering and processing business volumes during the first quarter were supported by the addition of two a newly completed wells at Alpine High Apache is scheduled to complete five more wells this quarter some of which will begin flowing back later this month.

Operating cost decrease for the seventh consecutive quarter, which is especially impressive given the overtime incurred responding to the harsh weather conditions.

A portion of these cost savings is related to timing, where we have accelerated expenses to take advantage of lower pricing.

Last quarter, we pulled forward scheduled maintenance and pre bought supplies and chemicals, reducing our burden at the start of this year.

We also benefited from lower contractor costs. Our operations teams have been very successful converting many of our fixed cost to variable cost.

We continue to pursue third party business, though the environment is still somewhat subdued with lower activity levels across the Permian basin conversations are ongoing with both public and private equity backed E&P operators as well as other midstream companies.

We're also working deals with Apache outside of Alpine high. This includes providing compression net other fields and the Delaware basin and identifying additional opportunities for expanding services with our sponsor.

Looking ahead to the remainder of the year, our focus areas will be capturing new business optimizing our assets and continuing to build on a strong ESG culture.

We are optimistic that demand for oil and gas products will continue to strengthen which should support measured increases in drilling and completion activity and the Permian basin.

Altus midstream significant growth capital obligations are behind us and the company has and a strong position to generate meaningful free cash flow or.

Our business is becoming more straightforward with upside potential from both our G&P assets and liquids pipelines through increased utilization.

Earlier this week <unk> board of directors declared a dividend of a $1 50 per share payable at the end of June to shareholders of record on May 28.

Our unique combination of long haul pipelines and gathering and processing assets provide substantial support for our dividend, which offers one of the most attractive yields compared among our midstream peers today.

Note I will turn the call over to a bit.

Thank you clay and my prepared remarks, I will review Altus midstream financial performance for the first quarter, including the including the financial impact of the February freeze and our updated guidance for 2021.

As noted in a press release issued yesterday also reported net income, including Noncontrolling interest of $22 million for the first quarter adjusted.

Adjusted EBITDA was $65 million and growth capital expenditures were approximately $21 million.

Net income, including Noncontrolling interest was lower by approximately $17 million related to and unrealized embedded derivative loss for the quarter, which reflects a technical accounting revaluation of the embedded derivative and our preferred units for the period.

Gathered volumes for the quarter averaged 436 million cubic feet per day of which approximately 72% was rich gas.

Volumes for the first quarter were impacted by weather related curtailments, which were partially offset by the two additional well hookups at alpine high and during the quarter.

All of the weather related shut ins were brought back online before the end of February.

Our first quarter results also include the initial contributions from the Permian Highway natural gas pipeline, which entered service on January one 2021. However.

However, distributions generally lag a month. So this quarter's results reflect only two months of distributions from PHP, one of which was lower due to the weather impacts a winter storm here.

Both PHP and Gulf Coast Express are fully supported by shippers minimum volume commitments and we expect steady contributions from them going forward.

For Altus, the financial impact of the storm was immaterial.

Across our four JV pipes, and our GMP system, the negative impact to net income before taxes and adjusted EBITDA was approximately half a million dollars.

Negative impacts from lower volumes across all assets, including pipeline and balances were almost fully offset by the benefit of our power contract that clay discussed.

I would also like to commend the commercial and operations team for their achievements before and during the storm.

<unk> are an outcome, a preparation and from contracting strategies that provide flexibility and mitigate risks to the execution and the field necessary for maintaining our operations and severe conditions. They did an excellent job.

I'll move on now to our outlook for 2021, we've provided updated guidance.

And the Investor presentation posted to the Altice website yesterday, and I want to highlight items.

Our gathered volume outlook has been adjusted upwards and is now a 370 to 410 million cubic feet per day.

This reflects the encouraging early performance of the two new wells brought online at Alpine high during the first quarter and the addition of five more wells that clay noted earlier.

Higher G&P volumes have a positive effect on our outlook for adjusted EBITDA. Therefore, we are raising the low end of our guidance range to $240 million from $230 million, increasing the mid point to $255 million for the year.

Following the startup a Permian highway or growth capital obligations are minimal and we remain on track with our previous annual guidance estimate of $30 million to $40 million.

Altus has a strong liquidity position a revolver is committed through November of 2023 and.

And we foresee no need to access capital.

We continue to focus on the balance sheet with priority is on addressing the preferred and supporting our strong dividend payout.

Operator that concludes our prepared remarks, and we can now move on to Q&A.

At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press star and the number one and your telephone keypad.

Again, Thats star one to ask a question.

Our first question today comes from the line of your revenue.

Okay.

Please proceed with your question.

Hi, This is Chad on for Spiro, just starting off clay I believe you've previously alluded to some potential growth opportunities coming later this year. It sounds like that may still be the case based on your prepared remarks, but could we see any of those projects you mentioned coming and the next few months are being announced and the next few months just want.

And how we should think about timing and some of those opportunities.

Yes, thanks for the question, Chad and with regard to the growth opportunities. We do believe that those are something that are very feasible I do believe just from a timing standpoint, we'd be looking at the second half of the year rather than next two months a lot.

A that will stem from operators that are starting to increase their activity in and around the Delaware basin, we think debt some of the mandates some of the regulatory mandates that we'll see with regard to methane and flaring are going to benefit altice greatly not only in the last half of this year, but going into <unk>.

2022, as well so the fact that we are structured the way that we are with a new plant state of the art facilities a law.

A lot of ESG.

Ads that you can see on our Investor presentation, we really do have.

Some great additions to that plant that don't exist and many of the other particularly older plants in the Permian Basin, and we think that that is something that's really going to be helpful and beneficial to all of this and the future. So that's something second half of 2021.

Going into 2022, especially when we start seeing these mandates materialized or what we believe to be mandates.

That will be coming from EPA as well as a railroad commission with regard to flaring. So we think thats going to create some opportunities for us.

Okay. Thanks, that's clear and then I guess, just sticking with the growth opportunities.

Could you provide any kind of detail on what capex could look like from these opportunities are these it sounds like there may be a little bit smaller spend kind of complementary projects, but is there anything in there that could be more and more significant capex.

When you take a look at what we're talking about in terms of Capex is going to be connection capex, because we have excess capacity and the plants. We have 660 million cubic feet per day of processing capacity. We're processing right now between 340 to 360 million cubic feet per day.

And through a rich system, and we have plenty of capacity and our lean system over 200 million cubic feet per day, a excess capacity so either.

And if it's lean gas or rich gas.

The opportunities to bring that gas and there is really just going to be pipeline ways to either producers or other midstream operators in the area. So I guess to answer your question, we're not talking about big capital expenditures, what we're talking about doing is utilizing excess capacity that we have and our lean gas and rich gas price.

<unk> systems.

Yes and <unk>.

One more clarifying point there.

On top of that we think of it as well in terms of kind of build multiple a projects and a lot of what we're seeing.

And our very attractive build multiples kind of in a low to mid single digits.

Which will be accretive.

For our shareholders.

Okay. That's clear thanks for that and Thats all I had thanks for the time everyone.

Thanks, Chad.

And again, ladies and gentlemen.

One asked.

Last one.

Your next question comes from the line of James <unk> with <unk>.

And capital Advisors. Please proceed.

And with your question.

Hi, guys. Thanks for the question.

Do you happen to have the contribution that PHP made in Q1.

Just as we think about what that could look like going forward.

Yeah.

Not specifically James.

It's going to have some noise in it from Q1, as we mentioned because of the winter storm.

<unk>.

And impacting flows and balances and quite frankly across many of the pipes, and Texas, including <unk> and PHP.

Haven't disclosed the specifics around that.

But fully expect it to.

And to normalize.

And Qs two through four and and even beyond.

Barring any other kind of a force majeure events out there.

Okay. So I mean, you will disclose the distributions you got and the 10-Q I imagine, but you are saying that.

Even taking that up and grossing it up for a third monthly payment.

What's still not reflect.

Really what its ongoing earnings will be because you have debt.

Storm impact.

Alright.

Okay.

And is there any early indications on how.

The two completed ducks are performing how long have those been been flowing and any.

And you kind of IP rates there.

One month production rate so far.

No.

Apache and bad debt.

On their call this morning and back.

And that the two ducks.

Were completed earlier this year and alpine high and they have five more and we even mentioned that in the script earlier as far as those will be completed in the month of May and we'll even have some of them flowing but there has not been any discussion on the results of the two that have already been completed from a patchy. So thats not something that we can comp.

And on ourselves, but we expect to have more information and and.

We expect the Apache will we'll disclose some of that and further discussions on alpine high.

Well, one reason I ask is because.

The two ducks completed plus five more in Q2 I just it seems like that would have led to maybe a little bit higher <unk>.

A revision of the throughput guidance.

So any other any other things that are going on there.

Offsetting what would be those added volumes.

Yes. So good question and let me say this as far as our guidance, we're being very conservative so what you're not seeing is a lot of upside baked in from those ducks and the performance thereof. So standby on that and we'll try to provide some more color on that in the months ahead, but we're a.

Waiting on Apache to make that disclosure before we get out in front of that but what youre, what youre not seeing and the guidance if you will.

Is a lot of upside baked in for those ducks.

Okay.

And then maybe final question for me I think Apache did allude to a <unk>.

Non core Permian asset sale on their call, but it didn't sound like it was related to alpine high is that is that your understanding as well.

That is that is correct.

Okay. Thank you.

Yeah.

Thank you James.

And again, please press Star then one to ask a question.

And there are no further questions in queue at this time I will now turn the call back.

Oh, great. Thank you for any closing remarks.

Thank you for listening to our call today I'd like to leave you with a following closing thoughts about altus midstream.

We entered 2021 with significant momentum and this continues signs of economic improvement are out there as more people get vaccinated and business activity picks up across all sectors, we see potential with new wells contributing to our G&P business.

The potential for third party volumes and increased utilization on our joint venture liquid pipelines.

We have the capability to provide Permian basin operators, a range a midstream solutions with a focus on ESG performance.

It should be noted that our updated guidance does not include upside associated with this optimism.

Lastly, <unk> is well positioned to achieve its financial and operational goals and 2021.

This supports our objective of returning capital to shareholders and I am pleased we will deliver our second quarterly dividend payment next month.

Operator that concludes our call and I'll turn it over to you.

This concludes today's conference call and thank you for your participation you may now disconnect.

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