Q2 2021 Summit Midstream Partners LP Earnings Call

August 6, 2021

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Welcome to the second quarter 2021 summit Midstream Partners LP earnings Conference call. My name is Hilda and I will be your operator for today.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star and then 1 on your Touchtone phone.

Please note that this conference is being recorded.

I will now turn the call over to Mr. Ross Wong Senior director of corporate development and finance Mr. Wang you may begin.

Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release was issued earlier this morning.

And just our website at www, although midstream glycol.

And I'll call on them.

On the homepage events and presentations section for quarterly results and such.

With me today to discuss our second quarter of 'twenty, 1 financial and operating results.

And then Chief Executive Officer, and share Marc Stratton, our Chief Financial Officer, who on.

Other members of our senior management team.

Before we start elect to remind you that our discussion today may contain forward looking statements.

Statements may include but are not loans into our estimates of future bolt on operating.

Operating expenses and capital expenditures.

And May also include statements concerning anticipated cash flow liquidity business strategy and other plans and objectives for future operations.

Although we believes the expectations reflected in such forward looking statements are reasonable and we can provide no assurance that such expectations will prove to be correct.

Please see our 2020 annual report on form 10-K, which was filed with the SEC on March 4.2021, as well as our other SEC filings for a list and the factors that could cause actual results to differ materially and expected results.

And I'll note that on this call we use the terms EBITDA and adjusted EBITDA and distributable cash flow.

These are non-GAAP financial measures and we've provided reconciliations to the most directly comparable GAAP measures and our most recent earnings release and.

Ill turn the call over to you Alright, alright, Thank you Ross and good morning, everyone. Thanks for joining us for our second quarter guidance call.

This morning Summit reported second quarter financial operating results that were well ahead on the original expectations that we established this past March and Rep.

Presented a solid beat for the quarter relative to the revised budget.

When we updated our 2021 and adjusted EBITDA guidance range, and 225, and 240 million and back in late June.

For the quarter adjusted EBITDA turned out to be $62.1 million, which was driven by and connection of 20 wells during the quarter together with the continued outperformance of wells that were connected in earlier periods.

Our results also benefited from reduced operating and G&A expenses, which are associated with the restructuring initiatives that we put.

And they did.

Towards the end of last year as well as our ongoing focus on capturing additional cost savings.

The other with our disciplined capital program.

Generated enough free cash flow to repay another $40 million and debt during the second quarter, which since June 30.

Also been able to repay and additional $19 million to reduce our current outstanding revolver and the current level and $735 million net of cash.

During our first quarter earnings calls and early May and I commented that there were several encouraging signs that could lead to a more per bullet second half 'twenty 'twenty 1.

However, we felt it was too early and the year, particularly under the circumstances at the time to make modifications to that original 2021 and financial guidance.

Since then however, the overall market backdrop, as Joe and improved commodity prices and strengthen.

And as economy, and reopen and the depth and breadth of commercial discussions with existing and new customers.

And given these dynamics along with our continued progress on cost management initiatives and we do.

And enough confidence in late June to increase our full year 2021, adjusted EBITDA guidance range by $12 million.

The midpoint.

So on the on the commercial front generative continues to shift and also on the direction at least through the commodity price outlook.

And now we currently have 5 rigs working behind our systems and we now expect roughly 87 and 96, new wells to be turned on line in 2021 versus the <unk> 45 to 75 wells that we could use and our original 2021 guidance.

While it's too early to begin projecting activity levels for 2022.

What I can tell you that we're very encouraged by recent customer discussions that we've had on this.

Lars to point to further increases potentially and drilling activity around our footprint as we head into next year, particularly and our Permian Williston and Utica segments.

As we outlined in our earnings release, we are making great progress on refinancing our 2022 debt maturities and with the construction of the <unk> pipeline, both of which were our 2 highest priorities this year.

Our comprehensive refinancing plan is expected to include a new 4 and a half year $4 million to $500 million asset based revolver, and together with 7% to $750 million and proceeds on a new high yield notes offering to refinance all of our 2022 debt maturities, that's inaccurate and by the way. It is currently.

$969 million.

Today, we're pleased to announce that we have received 400 million ABL revolver commitments on the syndicate of lenders.

Lenders on these commitments are contingent on the successful arrangement and closing.

And with notes along with other customary closing conditions.

And I'll look at this point that we'd be this initial commitment and the critical first step and the process and 1 that has taken a.

A fair amount of time to get it completed but were very happy.

And to be it and that problem.

So when completed and your revolver and the high yield notes and holistic financially financing solutions and start with enhanced financial flexibility ample liquidity to grow the business and a long term runway to continue harvesting substantial amount of free cash flow that we need to use to continue delevering the balance sheet and drive significant long term.

Holder value.

Completing this refinancing, which we expect to be by the end of September is the top priority for our team and we are excited about the prospect of closing a comprehensive solution that we believe will help move and a major overhang on the value of the company that's been around for quite some time.

Yes.

Construction on the totally pipeline is also progressing very well and we continue to track ahead of schedule and below budget and all of this while maintaining a remarkable market safety and compliance record.

<unk> is now approximately 60% complete and importantly, we completed and really all of the major waterpark body crossings and 70 per really all of the other consider complex area construction.

So we're well on our way to place and the prospects and service during the fourth quarter of the year and we also continue to expect that will come in and literally under our revised budget of $425 million, which by the way still includes about $30 million.

Committed project contingency.

And we tried to guide that we're getting closer to bringing this world class project online and would like to thank and commend the team and our contractors for doing a really outstanding job today.

Okay.

I also want to comment on the very important press release that we issued regarding the global settlement, we reached with the government on the previously disclosed produce Florida still.

It occurred on near the Black brokerage and commodity North Dakota.

And this will resulted from a week or a rupture and they produce.

And water gathering lines on our <unk> system.

That we discovered in January of 2015.

As we stated in the press release the company is taking this matter very seriously from very beginning and frankly, it's changed who we are and how we operate as a company.

We have accepted the overall responsibility for the spill from the very beginning and I can tell you. The company has been working very hard over the past 7 years to make it right, while making dramatic drastic and improvements to our operating systems and processes capabilities and.

Ensure that and incident like this.

And I cannot happen again.

Since 2015, we spent approximately $75 million on environmental remediation efforts to restore the areas impacted by themselves and we made substantial investments in those.

System, and preventative and system improvements, which include among other things and state of the RP protection technology centralized control and monitoring and alarm systems. Many additional changes to our companywide operating practices and procedures.

The global settlement and we reached and the government. This week is an important final step to fully resolve the ongoing investigations and legal matters surrounding them.

It's important to note that the global settlement remains subject to court approval before will come and effective.

And look while we continue on the overall monetary settlement payment fees and severe under the circumstances, particularly given our substantial remediation.

Mitigation efforts that we put towards a day and when do you believe that putting this matter behind us and manageable payment terms and we received over the next 6 years and then.

Net interest and with all the stakeholders and employees.

Safety.

And the environment RMB utmost importance to all of US here at summit and while we deeply regret and we've learned a lot from it and has served as a tremendous catalyst over the years to redefine our culture and again, how we operate as a company.

So with that I'd like to hand, the call over to Mark to review our financial results.

Thanks, Keith and good morning, everyone.

I'll begin with a discussion of our quarterly financial performance around the second that comprise our core focus areas starting with the Utica shale. The SMU system averaged 496 million cubic feet per day in the second quarter and segment adjusted EBITDA totaled $10.7 million, which was up $2.9 million or 38% from the first quarter of 2021.

The 21% volume increase was largely driven by the 4 well pad that came online in March and was also possibly impacted by 6 new wells that were turned in line and you kind of Tcl and <unk> interconnect during the quarter.

The 4 well March pad that I, just referenced average more than 170 million cubic feet, a day and the second quarter and outperformed our internal expectations by more than 20%.

And as a result of the compelling production results and strong commodity price environment.

This customer and have accelerated drilling plans for 4 additional wells that are expected to be turned in line and the fourth quarter of this year.

It was a quarter earlier than originally planned.

And we recently received a connection notice for another 4 well pad and mid 2022 and the same customer.

So if you can tell there are a number of near term catalysts and setting up for the system.

For our Ohio gathering segment, adjusted EBITDA totaled $6.8 million from the second quarter, which was in line with the first quarter largely due to lower operating expenses, which is partially offset by a 7.9% decrease in volume throughput.

3 wells being connected during the quarter.

At the end of the second quarter, there were 4 ducks behind the OTC system, which are expected to be turned in line and the third quarter and we're on.

Optimistic about new commercial opportunities and got OTC beginning of 2022.

Whilst the segment adjusted EBITDA totaled $9.6 million and the second quarter or 10, 9% decrease from the first quarter, primarily due to lower liquids volumes and higher opex during the quarter.

There were 6 docs and inventory behind on liquid system as of June 30.

All of which are expected to be turned in line.

And by the end of the third quarter.

So much of our other core focus areas, we're seeing both and acceleration of expected customer well connections as well as strong indications of new upstream activity on the forefront.

Based on recent discussions 1 of our customers have confirmed that they plan on bringing 7 new wells on line and behind on liquids infrastructure and the fourth quarter, which is sooner than their original plans were.

We're also and advanced discussions with multiple customers regarding new well activity that could add up to 19, new wells before the end of the first quarter of 2022.

DJ Basin segment, adjusted EBITDA totaled $5.1 million and the second quarter at 4.5 per cent decrease on the first quarter of 2021, primarily due to changes in customer volume and mix.

Second quarter volume throughput averaged 23 million cubic feet a day.

And in line with the first quarter.

There are no ducks behind our DJ basin infrastructure and we're currently awaiting details from our customers regarding specific plans for development and the Air Force area for 2022 and beyond.

Permian segment, adjusted EBITDA totaled $5 million and second quarter, a decrease of approximately $200000 compared to the first quarter, primarily due to increased operating expenses for compressor related maintenance and property taxes.

Fight flat quarterly throughput volumes of 29 million cubic feet a day no new wells were connected during the quarter and there were no deaths currently behind the Permian systems on them.

However, we are in advanced commercial discussions with several counterparties that have the potential to increase utilization of the lane processing plant and 60 million cubic feet a day of nameplate capacity.

Early 80%, which is a substantial increase relative to the realized throughput and utilization of 48% and Q2.

I look forward to share more details about these opportunities once they have been finalized.

Our legacy areas, which include the Piceance, Barnett and Marcellus segments, generating $35.6 million and free cash flow and the second quarter.

Upstream activity and our legacy areas, including 9 new well connects behind our mountaineer midstream system and the Marcellus.

As well as the consistent pace of work on first and completions and the Barnett.

We expect 7 new Barnett wells to be turned on line during the third quarter that I expected to meaningfully increase volume is going on the system.

We're also evaluating and multi year development program with 1 of our larger customers and the peanuts, which is currently contemplated.

Our results and our first new wells turned in line behind our Piceance or infrastructure to late 2018.

Now turning back to the partnership.

<unk> reported a second quarter net loss of $19.7 million adjusted EBITDA of $62.1 million and DCF of $46.5 million.

Our net loss was driven by $31.5 million noncash expense related to a $19.3 million loss contingency accrual related to the Mormon and stuff.

And $12.2 million related to energy capital partners and recent exercise of its courts infill.

<unk> hundred 14000, new ethanol <unk> common units.

Capital expenditures totaled $3.4 million for the second quarter, which was $700000 higher than the first quarter and included $1.2 million and maintenance Capex.

The majority of second quarter, Capex was associated with growth capital to connect new pad sites, and our Utica and Williston and segments that are expected to commence production and the second half of 2021.

During the second.

And quarter summit funded all $42.8 million of its double the capital calls for a 70% interest and the J D.

With borrowings under the non recourse credit facilities that we put in place and March at summit Permian transmission.

Utilizing these credit facilities to fund the development pipeline and extremely impactful to us on a strategy of continuing to de lever, while simultaneously progressing the project towards and surface day.

At this funding options were not available.

And so I'll see what would have to draw on the on its revolver rather than paying down the $40 million, we did and the second quarter.

As of June 30, there was <unk>.

$53.5 million borrowed under the Permian transmission credit facilities.

With respect to the smoking and the balance sheet, we had $762 million outstanding under our $1.1 billion revolving credit facility at June 30.

Which is down by $95 million and year end 2020.

And as I mentioned down $40 million from the end of the first quarter.

So I think and covenant limits, our available borrowing capacity at the end of the second quarter totaled approximately $138 million.

And with cash on hand, we had approximately $145 million of total liquidity.

Total leverage at June 30 was 5.0 times compared to a maximum limit of $5.7 and 5 times.

And first lien leverage was 3 zero times compared to a maximum limit of 3.5 times.

As mentioned earlier subsequent to June 30, and we've already paid down an additional $19 million under the revolver and we.

We expect to continue making good progress on our debt repayment plan for the foreseeable future.

And he's mentioned refinancing our 2022 debt maturities is a top priority for our team and what.

Hard and diligently and quickly to execute on our holistic refinancing solution.

Our objective is to establish a new pro forma capital structure that extends our debt maturity profile.

Ample liquidity to grow our business.

And includes a significant amount of pre payable debt, which we plan to continue reducing with the robust free cash flow that our business generates.

I am, especially thankful for our lending partners committed $400 million to the new ABL revolver.

That is based on the value of our book ground mission critical assets.

The borrowing base governed governing the ABL is currently and is expected to remain significantly higher than the $400 million to $500 million ABL facility corporate point, perhaps your term.

In addition.

The high yield bond markets continue to be robust and we plan on closing and funding the new ABL revolver and high yield notes concurrently by September 30 of this year.

Refinancing our 2022 debt maturities is a critical event for seller and I.

And believe that we will see immediate benefits across our capital structure on solving this over and.

And with that I'll turn the call back over to Heath for closing remarks, alright. Thank you Mark.

So we're pleased with summit performance through the first 2 quarters of the year, there and we do remain very optimistic about the forward trajectory given the improvement and the macro environment.

Signs of increased upstream activity on our systems that we talked about and also the line of sight to completing our top priorities our top 2 priorities for the year, which again and include the successful near term refinancing of our 2022 debt maturities and completing the deadly virus and starting operations by by the end of the year.

And we're also very excited about the rekindle discussions that we're having new and existing customers that mark alluded to around our core assets and the Permian Utica and Marc also continue to think that M&A activity will increase both in the public and private sectors as companies continue to focus on ways to gain scale and create.

Commercial and operational synergies and enhance overall returns.

Given our diverse footprint that stretches across multiple attractive basins, along with great progress that we've made to simplify our structure and improved overall balance sheet and I do believe that some of it is very well positioned to participate and that M&A efforts.

And I can assure you that maximizing free cash flow and Delevering. The balance sheet continues to be top of mind for us.

We will remain extremely disciplined on the M&A front and will only consider transacting on opportunities that we're convinced will generate long term value and can be accomplished on a credit accretive basis.

And so with that I'd like to thank everyone for their time on today look forward to providing additional updates as we continue to.

Moving forward with our refinancing plans and on the other key milestones throughout the year.

That operator, I'd like to open up the call for questions.

Thank you we will now begin the question and answer session.

Have you have a question. Please press star and then 1 on your Touchtone phone.

If you wish to be removed from the queue. Please press the pound sign or hash key.

Are you seeing on Speakerphone, you may need to pick up the handset first before pressing the numbers.

And once again, if you have a question and please press star and then 1 on your Touchtone phone.

We're standing by for your questions.

We have a question from James Carreker from U S capital and bankers.

Hi, guys, Thanks, and good question.

You talked about 5 weeks behind your system. Currently can you talk a little bit about how that compares to kind of recent historical levels and also kind of.

What level of rig activity was assumed when you refresh your guidance recently.

Yeah, Thanks, and thanks, James and all.

I'll, let mark give you some specifics, but definitely it's been a pickup and activity relative to what we assumed for 2021.

And we kind of highlighted on our overall total and line connections and wells is.

Even in the.

I think it was and the 87 to 96 range or so that was a substantial pick up relative to the midpoint to midpoint and what we expected for the year was closer to like 54 wells and I think and so I think that certainly reflects and pick up at and activity for 2021 and relative to historical levels, but I can tell you.

And this is still a very much a trough year for us and I think maybe.

And if you look over the past several years on a pre COVID-19.

He took over on to connect and somewhere around 2 to 300 wells per year, So and I think moving fast forward and look into 2022, wallets and as I said, it's too early to call them and I think what we're seeing is momentum that I believe and 2022, well connects and activity is going to increase relative to where we think were going on.

Those of you and this year.

Yeah. Good morning, James This is mark speaking.

And just give you a little sense as to where the rigs are working behind our systems right now and so we've got 1 rig working and the Utica.

And in the Williston and 1 in the Permian and believe it or not 1 and the piceance.

And which we mentioned were talking to a customer about a multiyear development program, there which would be.

Really the new first wells personal loans that we've seen on that system and several years.

So look at it.

5 rigs working today or certainly in excess of what we expected when we set our original guidance in.

In March and I think that is.

And also contributing to our optimism about the second half of this year and heading into into next year, but I would tell you.

Over the last year and a half so really since the beginning of 2020.

And anywhere from zero to 5 rigs working really right now.

Gross debt.

Historically on here.

Thanks, and I kind of leads me into my second question, which is you know.

North of a $120 million of EBITDA year to date.

Increased rig activity increased well connects.

And supportive commodity prices I guess, what would you need to see in order to feel more optimistic about raising the guidance range for 'twenty 1.

Just given all of those factors.

Yeah, I think it's a good question and I think we still feel like this is the right range.

I'd tell you just based on the second quarter, and we did kind of beat the underlying quarterly budget that we had envisioned and we put that in place.

But I think we're at a point that the.

Maybe something within the range hopefully.

And you'll get a little bit more to the upper end of the range.

And.

A lot of that has to do as you kind of get further into the year I mean, it takes time for these guys to complete wells and bring them online. So I think we've got a.

And really really good located on the second half of the year is going to look like from a turn on my perspective.

So I think most of the.

Upside if you will or.

And see.

Higher impacts I think as you get into 2022, when those wells kind of coming online.

And that makes sense, so we feel pretty good about guidance and we're just.

Feeling pretty good about going into 2022 with a substantially increased activity relative to what we were having this year.

Thanks, if I could just have 1 more and maybe just talk a little bit about as expected high yield bond offering and the new revolving commitments.

Yes.

And any type of.

Restrictions or anything that you would expect to be placed on those and regards to either.

Resuming payments of your preferred.

Equity or resuming.

Dividend payments at some point and the future.

Or any other kind of.

Covenants that you think may be relevant that will be and those new piece of paper.

Yes, you bet, James and look out given kind of the high level, and then mark and kind of.

And the details on a good degree.

Exciting to kind of get the.

And you ABL facility I think it's going to give us a tremendous amount of financial flexibility.

And it's going to be relative to cash flow.

Revolver, which is why we kind of switched over to the ABL structure.

And over the $4.5 year term, we think that the covenant package, that's going to come along with it and really kind of solidifies and runway for us amongst and any kind of.

Financial scenario or.

Activity.

Okay.

Technical difficulties, please standby and we will resume with your answer thank you and please standby.

Okay.

Yeah.

Okay.

We thank you for your patience, we will not resume and Mr. Wang. Please proceed.

Hi.

Hi, James total Youre, so loans on how we got disconnected from the call and so maybe just to kind of start back and answer your question and very excited about the new ABL revolver, we definitely see and given us a tremendous amount of flexibility.

Usually the more traditional cash flow based revolver and I'll, let mark and given details on the covenants, but what we really been on the new and we've talked about this and.

And then.

And there's still uncertainty out there right I mean, we still have different variance of COVID-19 and different levels of redemption on the environment and different outlets on commodity prices and what we really wanted to do was solidified our long term runway of 4 and a half year runway that almost and any kind of outlook, we feel comfortable and will give us enough time to harvest and.

The amount of free cash flow and continue to delever over that window and so they get the ABL and I think we've accomplished that Martin could you and and Rps.

And anything that we are on our focus is going to be and continuing to delever the balance sheet.

And to be in a position to be.

And I will turn on distributions at the appropriate time.

But at this point, we were kind of focused on hitting this high yield offering done getting the ABL complete and September and as I said, we'll have a lot of headroom on covenants.

Covenants and we think we will have very reasonable restricted payment baskets debt.

And the.

And kind of current.

Outlook kind of prevails, and we say and the.

60 to 70 per the German and 30 to $4 gas I mean on a go confidence and prominent next few years, we would be able to kind of rethink.

Level.

And Mark you want and maybe elaborate a little bit more on the covenants, yes sure. James So look I think as you think about the ABL facility I would think about financial performance covenants that provide more.

Financial flexibility relative to a traditional cash flow base revolver, so think about.

First lien leverage.

And in the 2.5 times area.

Which would be our primary leverage based governor going forward with.

With respect to Rfps look and we certainly understand that it is top of mind for for our our lenders, including our banks and bondholders and.

And we.

We recognize that the environment has changed so our focus right now James.

On paying down debt and using our free cash flow.

And good headway, there and that's what you've seen us do and I think.

And the appropriate time, and we feel like we've made enough headway.

And we will consider and distribution, but at this point.

And our focus continues to be on paying down debt.

Yes, I don't know if you guys can hear me, but thanks for your answers.

Alright, Thank you and makes sense.

Thank you once again do you have a question. Please press star 1.

The next question comes from Elvira Scotto from RBC capital markets.

Hi, good morning, everyone.

Hey, thanks.

Comments that you made on M&A.

And is <unk>.

And while ago.

And separated your assets core versus legacy with the goal on dive.

Divesting those legacy assets, but now it looks like.

Pivotal is picking up and the Barnett and Youre, even having conversations and the PR. So I guess my question is.

Think about those legacy assets.

Bill.

Divestiture candidates or do they move to core I mean.

And just any any way you can frame that.

Yes, I mean look I think I think what.

Go ahead and answer that question and obviously in the Barnett.

We are continuing to be.

And as I think everyone talk and.

Our net income.

The decline and the 70 wells and really bring it online here and a few weeks.

And 1 is continuing and operating improvements and.

And occurring out and filled.

We think that we can do better than natural declines and maybe even and a more flattish outlook for Barnett.

When you think of the other legacy based on them and we still have a substantial amount of free cash flow generation and systems are built out and require very little maintenance capital to operate and provide a significant amount of free cash flow for us. So we're comfortable holding those assets and operating those assets.

But look and there's an opportunity to.

Net of an asset on a valuation that makes sense and it can be accelerate our de levering and we're certainly open to having that conversation, but I will say our viewpoint.

And what we're seeing in the market and theirs.

Not a lot of cash bids out there and it doesn't matter if you're in the Permian and the Bakken or the P ons and.

We think Theyre consol.

Consolidation makes a lot of sense and we think that whether we are divesting of an asset for someone.

Essentially created some additional commercial synergies are operating synergies makes sense and likewise, we're looking at assets around our footprint that we think we can kind of apply our extreme focus on cost and.

On driving synergies both on the commercial and operating Brian So.

I think the overall point is that we could be acquired we could be.

If you look at divesting assets and it really is just going to be value driven and it's really when we looked at through the lens of improving the balance sheet.

Great. Thank you very much.

Thank you once again, if you have a question. Please press star 1.

We have no further questions I would like to turn the call back to Mr. Heath Deneke for final remarks.

Great Thanks, and I, thank everyone for joining.

Obviously, you can do on its own we are feeling pretty good about knocking on our 2 main priorities this year and very optimistic with.

And with the outlook as we kind of start peaking in the.

2022, so look forward to continuing to keep you all updated as we make additional progress on the refinancing on Beverly and.

And.

I appreciate everyone's time this morning, and thank you very much.

Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.

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Welcome to the second quarter 2021 Summit Midstream Partners LP Earnings Conference call. My name is yoga and I will be your operator for today.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star and then 1 on your Touchtone phone.

Please note that this conference is being recorded.

I will now turn the call over to Mr. Ross <unk> senior director of corporate development and finance Mr. Wang you may begin.

Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release that was issued earlier. This morning. Please visit our website at www plus some of the midstream.

Dot com, where you'll find it on the homepage events and presentations section for quarterly results section.

With me today to discuss our second quarter of 2021 financial and operating results received on a fee.

And then Chief Executive Officer, and Chairman, Marc Stratton, our Chief Financial Officer, who on.

And with 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.

Statements may include but are not limited to our estimates of future volumes operating.

Operating expenses and capital expenditures.

It May also include statements concerning anticipated cash flow liquidity business strategy and other plans and objectives for future operations.

Although we believes the expectations reflected in such forward looking statements are reasonable and we can provide no assurance that it's also export sales.

And this will prove to be correct.

Please see our 2020 annual report on form 10-K, which is low FCC on March 4.2021, as well as our other SEC filings for listening and factors that could cause actual results to differ materially and expected results.

And also note that on this call we used to charge EBITDA and adjusted EBITDA and distributable cash flow.

These are non-GAAP financial measures and we've provided reconciliations to the most directly comparable GAAP measures and our most recent earnings release.

And with that I will turn the call over to you.

Great Alright, Thank you Ross and good morning, everyone. Thanks for joining us for our second quarter earnings call.

This morning Summit reported second quarter financial operating results that were well ahead and the reason.

Unless and patients that we established this past March and represented a solid beat for the quarter relative to the revised budget and when.

And we updated our 2021 and adjusted EBITDA guidance range to 200.

And we bought $204 million back in late June.

For the quarter adjusted EBITDA turned out to be $62.1 million, which was driven by the connection of 20 wells during the quarter together with the continued outperformance of wells that were connected in earlier periods.

Our results also benefited from reduced operating and G&A expenses, which are associated with the restructuring initiatives that we put.

And implemented towards the end of last year as well as our ongoing focus on cash conditional cost savings.

And what our disciplined capital program.

General and enough free cash flow to repay another $40 million and debt during the second quarter, which since June 30.

Also been able to repay and additional $19 million.

To reduce our current outstanding revolver and the current level of $735 million net of cash.

During our first quarter earnings call in early May and commented that there were several encouraging signs that could lead to a more bullish second half of 2021.

However, we felt it was too early and the year, particularly under the circumstances at the time to make modifications to the original 2021 and financial guidance.

Since then however, the overall market backdrop, as Joe and improve as commodity prices and strengthen.

And as economy, as reopen and the depth and breadth of commercial discussions and.

Indeed customers heads.

And given these dynamics along with our continued progress on cost management initiatives and we gained enough confidence in late June and increase our full year 2021 on adjusted EBITDA guidance range by 12.5 million.

The midpoint.

So on the on the commercial front generative continues to shift and on the direction at least through commodity price outlook.

And now we currently have 5 rigs working behind our systems and we now expect roughly 87% and I think it's D wells to be turned on line in 2021 versus the <unk> 45 to 75 wells that we could use and our original 2021 guidance.

While it's too early to begin and projecting activity levels for 2022.

And I can tell you as it were.

Very encouraged by recent customer discussions that we've had.

Largely point to further increases essentially and drilling activity across our footprint as we head into next year, particularly and our Permian Williston and Utica segments.

As we outlined in our earnings release.

We're making great progress on refinancing our 2022 debt maturities and with the construction of the <unk> pipeline, both of which were our 2 highest priorities this year.

And our comprehensive refinancing plan is expected to include the need for and a half year, 4% to $500 million asset based revolver and together with 7% to $750 million and proceeds on a new high yield note operating.

Terrific refinanced all of our 2022 debt maturities this and accurate by the way. It is currently $969 million.

Today, we're pleased and after we have received 400 million ABL revolver commitments on the agenda.

And the lenders on these commitments are contingent on the successful arrangement and closing.

Notes, along with other customary closing conditions.

Ill look at this point, we'd be this initial commitments is a critical first step and process and 1 that has taken.

A fair amount of time to get it completed.

Very happy to be it and that model.

So when completed on the new revolver on the high yield notes holistic financially financing solutions and Scott.

And with enhanced financial flexibility ample liquidity to grow the business and a long term runway to continue harvesting substantial amount of free cash flow debt.

And he used to continue delevering, the balance sheet and drive significant long term unitholder value and.

And this refinancing and which we expect to see Baidu September is the top priority for our team and we are excited about the prospect of closing the comprehensive solution and we will.

And we will help move a major overhang on value and the company that has been around for quite some time.

Construction on the total pipeline is also progressing very well and we continue to track ahead of schedule and below budget and all of this while maintaining a remarkable safety and compliance record.

And I believe is now approximately 60% complete and importantly, we've completed it really all of the major 1 of our body crossings and.

That would be a real and all of the other day.

And our complex area.

Instructions.

So we're well on our way to place and the process and service during the fourth quarter of the year and we also continue to expect that we will come and deliberately under our revised budget of $425 million, which by the way still includes about $30 million of uncommitted and contingency.

And I'm excited that we're getting closer to bringing this world class project online and would like to thank and commend the team and our contractors for doing a really outstanding job to date.

I also want to comment on the very important press release that we issued regarding the global settlement, we reached with the government.

On the previously disclosed produce large still.

And that occurred on the black brokerage model North Dakota.

And this will resulted from a leak and alright, Russia and produce.

<unk> water gathering lines on our <unk> system that we discovered in January of 2015.

As we stated and Nebraska leads the company has taken on this matter very seriously and very beginning and free.

<unk> exchange, who we are and how we operate as a company.

We have accepted the overall responsibility for the spill from the very beginning and I can tell you. The company has been working very hard over the past 7 years to make it right, while making dramatic and drastic and improvements to our operating systems and processes capabilities.

To ensure that and incident like this.

Cannot happen again.

Since 2015, we spent approximately $75 million on environmental remediation efforts to restore the ear and impacted by the sale and we made substantial investments in those.

System, and preventative and improvements which include state.

State of the RP detection technology centralized control and monitoring and alarm systems. Many additional changes to our companywide operating practices and procedures.

The global settlement and we reached with the government. This week is and accordingly final step to fully resolve the ongoing investigations and legal matters. So Randy.

It's important to note that global settlement remains subject to court approval will come and effective.

And look while we consider the overall monetary settlement payment fees and severe under the circumstances, particularly given our substantial remediation immediate mitigation efforts that we put towards a day.

And when do you believe that putting this matter behind us where the cash payment terms and we received over the next 6 years and then.

Net interest at all on our stakeholders and employees.

Our safety and the environment RMB utmost importance to all of US here at summit and while we deeply regret the intent we've learned a lot from it and he has served as a tremendous catalyst over the years to redefine our culture and again, how we operate as a company.

So with that I'd like to hand, the call over to Mark to review our financial results.

Thanks, Keith and good morning, everyone.

I'll begin with a discussion of our quarterly financial performance for all of the segments that comprise our core focus areas starting with the Utica shale. The SMU system averaged 496 million cubic feet, a day and the second quarter and segment adjusted EBITDA totaled $10.7 million, which was up $2.9 million or 38% from the first quarter of 2021.

The 21% volume increase was largely driven by the 4 well pad that came online in March.

Also positively impacted by 6 new wells that were turned in line behind on PPL interconnect during the quarter.

So far well March path and I just referenced.

More than 170 million cubic feet, a day and the second quarter and outperformed our internal expectations by more than 20%.

And as a result on the compelling production results and strong commodity price environment.

This customer and accelerated drilling plans for 4 additional wells that are expected to be turned in line and the fourth quarter of this year, which is a quarter earlier than originally planned.

And we recently received a connection notice for another 4 well pad and mid 2022 and the same customer.

So if you can tell there are a number of near term catalysts and setting up to the system.

For our Ohio gathering segment, adjusted EBITDA totaled $6.8 billion and the second quarter, which was in line with the first quarter largely due to lower operating expenses, which is partially offset by a 7.5 per cent decrease and volume throughput. Despite 3 wells being connected during the quarter.

At the end of the second quarter, there were 4 docks behind the OTC system, which are expected to be turned in line and the third quarter.

And we're optimistic about new commercial opportunities and got OTC beginning of 2022.

Well, it's been a segment adjusted EBITDA totaled $9.6 million and the second quarter or 10, 9% decrease from the first quarter, primarily due to lower liquid volumes and higher opex during the quarter.

There were 6 docs and inventory behind on liquid system.

June 30, and all of which are expected to be turned in line.

And the end of the third quarter.

And so much of our other core focus areas, we're seeing both and acceleration of expected customer well connections as well as strong indications of new upstream activity on the forefront.

Based on recent discussions 1 of our customers just confirm what they plan on bringing 7 new wells on line behind our liquids infrastructure and the fourth quarter, which is sooner than their original plans.

We're also and advanced discussions with multiple customers regarding new well activity that could add up to 19, new wells before the end of the first quarter of 2022.

DJ Basin segment, adjusted EBITDA total of $5.1 million and the second quarter at 4.5 per cent decrease on the first quarter of 2021, primarily due to changes in customer volume and mix.

Second quarter volume throughput averaged 23 million cubic feet per day, which was in line with the first quarter.

There are no ducks behind that our DJ basin infrastructure and we're currently awaiting details from our customers regarding specific plans for development and the Air Force area for 2022 and beyond.

Despite flat quarterly throughput volumes of 20 on the piece of debt no new wells were connected during the quarter and there were no deaths currently behind the permanent zone.

However, we are and advanced commercial discussions with several counterparties that have the potential to increase utilization of the lane processing plant and 60 million cubic feet a day of nameplate capacity to nearly 80%, which is a substantial increase relative to the realized throughput and utilization of 48% and Q2.

I look forward to share more details about these opportunities swaps they have been finalized.

Our legacy areas, which include the Piceance Barnett and Marcellus segments generated $35.6 million of free cash flow and the second quarter.

Upstream activity and our legacy areas included 9 new well connects behind our mountaineer midstream system and the Marcellus as.

And as well as the consistent pace of work on first and completions in the Barnett.

We expect 7 new Barnett wells to be turned on line during the third quarter, but are expected to meaningfully increase volume is kind of the system.

We're also evaluating and multi year development program with 1 of our larger customers on the peanuts, which is currently contemplated.

And our first new wells turned in line behind our Piceance or infrastructure to late 2018.

Now turning back to the partnership.

<unk> reported a second quarter net loss of $19.7 million adjusted EBITDA of $62.1 million and DCF of $46.5 million.

Our net loss was driven by $31.5 million noncash expense related to a $19.3 million loss contingency accrual related to the Mormon and step.

And $12.2 million related to energy capital partners recent exercise of its courts and full of 414000, new ethanol P common units.

Okay.

Capital expenditures totaled $3.4 million for the second quarter, which was $700000 higher than the first quarter and included $1.2 million on maintenance Capex.

The majority of second quarter, Capex was associated with growth capital and connect new pads, and our Utica and Williston and segments that are expected to commence production and the second half of 2021.

During the second quarter summit funded all $42.8 million of its double the capital calls for a 70% interest and the JV.

With borrowings under the non recourse credit facilities that we put in place and March at summit Permian transmission.

Utilizing these credit facilities to fund the development of definitely pipeline and extremely impactful to us on strategy of continuing to de lever, while simultaneously progressing the project towards and surface stake.

If this funding options were not available.

That's what I would be what would have to draw on the on its revolver rather than paying down the $40 million, we did and the second quarter.

As of June 30th share was $53.5 million borrowed under the Permian transmission credit facilities.

With respect to that smoking and balance sheet, we had $762 million outstanding under our $1.1 billion revolving credit facility at June 30.

Which is down by $95 million.

Year end 2020 net.

And as I mentioned down $40 million from the end of the first quarter.

Subject to covenant limits, our available borrowing capacity at the end of the second quarter total approximately $138 million and.

And with cash on hand, we had approximately $145 million of total liquidity.

Total leverage at June 30 was 5 zero times compared to a maximum limit of 575 times and.

First lien leverage was 3 zero times compared to a maximum limit of 3.5 times.

As mentioned earlier subsequent to June 30, and we've already paid down an additional $19 million under the revolver and.

And we expect to continue making good progress on our debt repayment plan for the foreseeable future.

And as Heath mentioned refinancing our 2022 debt maturities is a top priority for our team and.

And we are working diligently and quickly execute on a holistic refinancing solution.

Our objective is to establish a new pro forma capital structure that extends our debt maturity profile provides ample liquidity to grow our business.

And that includes a significant amount of pre payable debt, which we plan to continue reducing with the robust free cash flow that our business generates.

I am, especially thankful for our lending partners that are committed $400 million to the new ABL revolver.

That is based on the value of our book around mission critical assets.

The borrowing base governed governing the ABL is currently and is expected to remain significantly higher than the $400 million to $500 million ABL facility cohort 4 and 5 year term.

In addition.

The high yield bond markets continue to be robust and we.

We plan on closing and funding the new ABL revolver and high yield notes concurrently by September 30 of this year.

Refinancing our 2022 debt maturities is a critical event for sot and I.

I believe that we will see immediate benefits across our capital structure pump solving this overhang.

And with that I'll turn the call back over to Heath for closing remarks, alright. Thank you Mark.

So we're pleased with summit performance and the first 2 quarters of the year, there and we do remain very optimistic about the forward trajectory given the improvement and the macro environment.

Signs of increased upstream activity on our systems that we talked about and also.

So the line of sight to completing our top priorities our top 2 priorities for the year, which again include the successful near term refinancing of our 2022 debt maturities and completing the debt we buy it and starting operation side by the end of the year.

And we're also very excited about the rekindle discussions that we're having new and existing customers that mark alluded to around our core assets and the Permian gross Utica and look also continue to think that M&A activity will increase both in the public and private sectors.

And he is continue to focus on ways to gain scale and create commercial and operational synergies and enhance overall returns.

And I can assure you that maximizing free cash flow and de levering the balance sheet continues to be top of mind for us.

And so with that I'd like to thank everyone for their time on today look forward to providing additional updates as we continue to.

Moving forward with our refinancing plans and some debt.

On a key milestones throughout the year.

Operator, I'd like to open up the call for questions.

Thank you we will now begin the question and answer session.

Have you have a question. Please press star and then 1 on your Touchtone phone.

If you wish to be removed from the queue. Please press the pound sign or hash key.

And you are you seeing on speakerphone, and you may need to pick up the handset first before pressing the numbers.

Once again, if we have a question. Please press star and then 1 on your Touchtone phone.

We are standing by for your questions.

We have a question from James Carreker from U S capital advisors.

Hi, guys. Thanks for the question.

You're talking about 5 rigs behind your system. Currently can you talk a little bit about how that compares to kind of recent historical levels and also kind of.

What level of rig activity was assumed when you refresh your guidance recently.

Yes.

Thanks James.

I'll, let mark give you some specifics, but definitely it's been a pickup and activity relative to what we assumed for 2021.

And we kind of highlighted our overall total and line connections and wells is deep.

Steven.

I think it was and the mid 87% to 96 range or so that was a substantial pick up relative to the midpoint to midpoint and what we expected for the year was closer to like 54 wells I think and so I think that certainly reflects a pick up at and activity for 2021 and relative to historical levels, where I can tell you.

And this is still a very much a trough year for us and I think.

And if you look over the past several years on a pre COVID-19.

It would be difficult for us and connect somewhere around 2 to 300 wells per year.

And.

And I think moving fast forward and look into 2022.

And as I said, it's too early to call, but I think what we're seeing is momentum that leaves us and believe that 2022, well connects and activity is going to increase relative to where we think we're going to close the year. This year.

Yes. Good morning, James This is mark speaking.

I'll give you a little sense as to where the rigs are working behind our systems right. Now so we've got 1 rig working and the Utica.

2 in the Williston, 1 and the Permian and I believe it or not 1 and the PR.

And which we mentioned were talking to a customer about a multi year development program, there which would be.

The new first wells first new wells that we've seen on that system and several years.

So look at it.

And 5 rigs working today or certainly in excess of what we expected when we set our original guidance.

In March and I think that has also contributed to our optimism.

The second half of this year and heading into into next year, but I would tell you.

Over the last year and a half so really since the beginning of 2020, we've seen anywhere from zero to 5 rigs working really right now.

Across debt.

And that historical time periods.

Thanks, and kind of leads me to my second question, which is.

And north of a $120 million of EBITDA year to date.

On increased rig activity increased well connects.

Supportive commodity prices I guess, what would you need to see in order to feel more optimistic about raising the guidance range for 'twenty 1.

Just given all of those factors.

Yes, I think it's a good question and I think we still feel like this is the right range.

What I would tell you is based on the second quarter and we did kind of beat the underlying quarterly budget that we had envisioned when we put that in place.

But I think we're at a point that the.

And maybe within the range hopefully.

Until there's a little bit more to the upper end of the range.

And a lot of that has to do as you kind of get further into the year I mean it <unk>.

Time for these guys to complete wells and bring them online. So I think we've got a.

And really really good located on the second half of the year is going to look like from a turn on my perspective.

So I think most of the.

Upside if you will or.

<unk>.

Higher impacts on because as you get into 2022, when those wells kind of coming on line.

And that makes sense. So we felt pretty good about guidance and we're just.

Feeling pretty good about going into 2020 do with casualty increased activity relative to what we are having this year.

Thanks, if I could just have 1 more and maybe just talk a little bit about as expected high yield bond offering and the new revolving commitments.

Yes.

And any type of restrictions or anything that you would expect to be placed on those and regards to either.

Resuming payments of your preferred.

Equity or resuming.

Dividend payments at some point and the future.

Or any other kind of.

Covenants that you think may be relevant that will be and those new piece of paper.

Yes, you bet, James and look out.

And you can kind of the high level and and the market kind of thing.

And the details.

And exciting to kind of get the and so.

New ABL facility I think it's going to give us a tremendous amount of financial flexibility.

And it's going to be relative to cash flow per mile.

<unk>, which is why we kind of switched over to the ABL structure.

Over the $4.5 year term, we think that the covenant package, that's going to come along with it and really kind of solidifies and runway for us almost and any kind of financial scenario or.

Activity.

Okay.

Technical difficulties, please standby and we will resume with your answer thank you and please standby.

Okay.

Yes.

Okay.

Alright.

We thank you for your patience, we will not resume and Mr. Wang. Please proceed.

Okay.

Hi, James up and Youre still on and how we got disconnected from the call. So.

Yes.

So kind of start back and answer your question very excited about the new ABL revolver, we definitely see it given us a tremendous amount of flexibility.

Obviously, the more traditional cash flow base revolver, I'll, let mark on giving details on the covenants, but what we really set out to do and we talked about this and may is it.

There's still uncertainty out there right I mean, we still have different variance of COVID-19 and different levels of protection on the environment and different outlooks on commodity prices and what we really wanted to do and will solidify our long term runway of 4 and a half year runway that almost and any kind of outlook, we feel comfortable and will give us enough time to harvest a.

Tangible amount of free cash flow and continue to de lever over that window. So they get the ABL on I think we've accomplished that mark and get you and and Rps.

I do think that we our focus is going to be to continue to delever the balance sheet, we'd love to be and are positioned.

And I will turn on distributions at the appropriate time.

But at this point, we were kind of focused on getting this hollywood offering done and getting the ABL complete and September and Ed will have a lot of headroom under our covenants and we think we'll have very reasonable restricted payment baskets debt.

And if the kind of current.

Outlook kind of prevails, and we say and the 60 to 70 per the gamut and 3 to $4 gas I mean, I feel confident and sometime in the next few years, we would be able to kind of reached a low.

And.

Dividend and Mark you want to maybe elaborate a little bit more on the covenants, yes sure. James So look I think as you think about the ABL facility I would think about financial performance covenants that provide more.

And some flexibility relative to a traditional cash flow base.

Oliver So think about.

First lien leverage.

In the 2.5 times area.

Which would be our primary leverage base governor going forward with respect to Rfps look and we certainly understand that it is top of mind for for our our lenders, including our banks and bondholders.

And we.

We recognize that the environment has changed so our focus right now James is.

On paying down debt, leaving our free cash flow debt.

Good headway there that's what you've seen us do.

And the appropriate time, and we feel like we've made enough headway.

And it will we consider and distribution, but at this point.

Our focus continues to be on paying down debt.

Yeah, I don't know if you guys can hear me, but thanks for the answers.

Alright, Thank you that makes sense.

Thank you once again do you have a question. Please press star 1.

The next question comes from Elvira Scotto from RBC capital markets.

Hi.

Morning, everyone.

The comments that you made on M&A Chris.

And as you know.

And while ago you guys.

And separating your assets core versus legacy with the book.

Divesting those legacy assets, but now it looks like activity is picking up and the Barnett and youre, even having conversations and the Pea on so I guess my question is how should we think about those legacy assets and you know they still.

Divestiture candidates or do they moved core I mean, just just any any way you can frame that.

Yeah, I mean look I think I think what.

The way I would answer that question and obviously in the Barnett.

We are continuing to be volume.

And as I think everyone talked about and attitude of PDP decline and it was a 70 wells and when we bring it online here and a few weeks and Wallace just continuing operating improvements and.

And occurring out and field.

We think that we can do better than natural declines and maybe even and a more flattish outlook for Barnett.

When you think of the other legacy based on them and we still have a substantial amount of free cash flow generation. The systems are built out and require very little maintenance capital to operate and provide a significant amount of free cash flow for us. So we're comfortable holding those assets and operating those assets, but look if theres an opportunity to bad debt.

<unk> of an asset on a on a.

Evaluation that makes sense and it can be accelerate our de levering and we're certainly open to having that conversation, but I will say our viewpoint and yes.

And what we're seeing and the market and there's just not a lot of cash bids out there and it doesn't matter if you're in the Permian and the Bakken and or the Piceance.

And we think their debt consolidation makes a lot of sense and we think that whether we are divesting of an asset for someone that could potentially create some additional commercial synergies are operating synergies make sense and likewise, we're looking at assets around our footprint that we think we can kind of a.

And apply our extreme focus on cost and.

On driving synergies both on the commercial and operating front and so.

I think the overall point is that we could be acquirers, we could be.

If you look at divesting assets and it really is just going to be value driven and it's really when we looked at through the lens of improving the balance sheet.

Great. Thank you very much.

Yes.

Thank you once again, if you have a question. Please press star 1.

We have no further questions I would like to turn the call back to Mr. Heath Deneke, Keith for final remarks.

Yeah, great. Thanks, and thanks, everyone for joining.

Obviously and Joe on its own we're feeling pretty good about knocking on our 2 main priorities this year and very optimistic with.

And what the outlook is we kind of start peeking into 2022, so look forward to continuing to keep you all updated as we make additional progress on the refinancing on Beverly and.

And.

I appreciate everyone's time this morning, and thank you very much.

Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.

Q2 2021 Summit Midstream Partners LP Earnings Call

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