Q3 2021 Summit Midstream Partners LP Earnings Call
Welcome to the Q3, 20th 21 Summit Midstream partners L. P earnings Conference call. My name is Vanessa and I will be your operator for todays call. 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.
If you have a question. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded I will now turn the call over to your host Mister Roth long.
Sex operator, a good morning, everyone.
Don't already have a copy of her orange release that was issued earlier this morning.
Visit our website Www Dot summit in this room dot com, where you'll find it on the homepage events and presentations section or quarterly results section.
With me today to discuss our third quarter of 2021 financial and operating results.
He said, a key or president Chief Executive Officer, and Chairman Mark threatened her she financial officer, along with other members of our senior management team.
We start I'd like to remind you that our discussion today may contain forward looking statements.
These statements May include but are not limited to our estimates of future volumes operating expenses and capital expenditures.
They may also includes statements concerning the anticipated cash flow liquidity visit strategy other plans objectives for future operations.
Although we believe that the expectations reflected in such forward looking statements are reasonable we can provide no assurance that social expectations will prove to be correct.
Please see our 2020th annual report on Form 10-K, which is part of the F. C. C. On March 4th 2021 is walls or otherwise SEC filings for listing of factors that could cause the actual results to differ materially for expected results.
Please also note that on this call we use the terms EBITDA adjusted EBITDA and a suitable cash flow. These are non-GAAP financial measures and we'd provide reconciliation for the most directly comparable got measures are most recent earnings release.
If that I'll turn the call over to eat.
Alright, great. Thank you Austin good morning, everyone.
So is this morning stomach reported third quarter financial and operating results from 61.1 million of adjusted EBITDA, which for the third consecutive quarter exceeded our internal expectations and.
And we had 20 well connected during the quarter, which includes seven wells in the Barnett and six crude and Mark wells in the Wilson.
The seven Barnett wells or the the first new wells that have been turned online on our system since 2019 and well results are really the.
The best that we've seen in the play.
Salt Lake experienced a 30 day I P. As in excess of 55 million a day of gas in the aggregate.
During the quarter. We also continue to utilize free cashflow did he live with a balance sheet and achieved another $37 million debt pay down in the third quarter, which brings us up to $132 million of debt pay down year to date.
That that enabled us to in the quarter with total leverage ratio of just under 4.9 times EBITDA.
Cause we look forward to the fourth quarter, we expect to continue building momentum with approximately 45 me wells that are scheduled to turn turn in line by the end of the year.
So given that our financial outperformance to date together with a steadily improving out and look for the business. Overall, we know it's that full year 2021, adjusted EBITDA guidance to be or eat out results to be near the high end of our previously announced guidance range up to $25 million to $240 million.
Additionally, we expect our full year 2021 capital guidance to come in towards the low end of the range, which was $20 million to $35 million a guidance.
Guidance range subsequent to quarter, and we've made significant progress and dancing, they're two top priorities for the year when included refinancing or a billion dollars of Ah that that was maturing in 2022 as well as further for them in the development of the W pipeline.
As noted in our earnings release, we've made significant progress on each of these and I'd like to spend some some time and provide some additional details.
First turning to the refinancing on Tuesday, we announced the closing of our new four and a half a year $400 million, a b L revolver and a new 700 million dollar secondly secured notes.
The closing of these credit facilities really marks a turning point for summit and it's certainly culmination of two years of effort to really transform the balance sheet in position for this refinancing.
Ah since the end of 2019 was employed a strategy centered around maximizing free cash flow and are prioritize debt repayment.
A new credit facilities are we further demonstrated its commitment to improving the balance sheet and restructure the ABL revolver and secondly notes in a way that really enabled us to allocate up to 300 million of excess free cash flow, which is effectively cash generated from operations less capital expenditures that we can apply towards we paying our higher cost secondly.
Dead.
This structure reflects our commitment to focus on delevering, the balance sheet by targeting absolute debt reduction as well as growing their underlying EBITDA, which are really the top priorities that we're gonna be focusing on going forward and.
And together you know we think this focus will enable us to continue unlocking value up and down the entire capital structure.
The Bill we're bothers also more covenant Lite Ah.
Parents are recently retired cashflow base with Robert.
And it provides us with not only ample liquidity, but also you know additional flexibility to continue to execute on our balance sheet transformation, while also providing an avenue to pursue value added growth opportunities.
With a net proceeds of the new credit facilities, we were able to extinguish the 725 million dollar balance on the revolver I was.
It was scheduled to mature in may of 2022, as well as the 234 million principal balance of the 20 twenty-two notes, which was scheduled to mature in August 7th 2022.
So effectively this holistic refinancing solution eliminates our near term refinancing risk.
Right, a three and a half year runway if you will until our next scheduled that maturity.
And provide substantial covenant flexibility really did manage any kind of unexpected delays are downturn of development activities around our system.
Turning now to doubly or other top priority you know construction of W continues to progress very well, we were able to achieve mechanical completion of the of the pipeline in October.
Of 2021.
And we expect to be able to place the project in service during the fourth quarter.
Of this year and potentially as early as you know by the by the end of November.
And now that we're nearing the end of construction now we are pleased to announce further reductions now that we're able to achieve on the project budget, which is I would expect it to be approximately 400 million in total which is roughly 280 million net to summit for at 70% interest in the project.
As a reminder, double <unk> I had to be Saturday under contract or approximately 75% of its initial 1.35 B C. F. A day of total throughput capacity.
These are committed commitments long term commitment to take a pay style commitments from some of the largest and most active producers in the Delaware basin, including Exxon and marathon all.
Upon commissioning W will begin service under the first annual contract period at roughly 600 million a day of that T commitments.
And those will step up throughout the first three years of service such that by your for definitely what where and take a pay revenue on the full one B C. F. A day of contracts currently in hand.
Furthermore, as activity levels in production in the northern Delaware continue to build.
Minimum within proven commodity price outlook, we do expect to be able to fill the remaining 350 million a day I'm available for them capacity over the next several years.
As it.
Upon initial service, we expect doubly too, we'll definitely will be connected with five natural gas processing plants in the northern Delaware Basin and there's also a interconnected with two of the largest newest downstream pipelines originating in awhile high region, which will provide double east customer, we're very desire to access to growing Ellen.
G export markets and the Gulf Coast region.
Mm beginning an ear for following startup and assuming that doubly is fully subscribed at at current market rates. Yeah. We would expect I believe to generate approximately $45 million EBIT and that will be net to summit 70 per cent interest in the asset which on and headaches basis represents really a build multiple of.
<unk> 6.25 times.
Look relative to trading multiples of other long haul pipes of this like we expect doubly will contribute significant residual equity value to ethanol P.
Additionally to the extent future demand exceeds the initial 1.35 B C F per day of capacity.
W system has the ability to to expand its capacity to approximately two b C. F. A day on a very cost effective basis simply just with the installation of mid point compression.
And of course, this would would dramatically increase or improve the bill multiple as well if we were able to achieve that to be C. F. A subscription that would be incremental costs associated with that expansion.
And so look I, obviously, we're we're very excited to be able to not only announced that were you know weeks away from being able to put the pipeline in service that we've made additional games you know on the capital budget, reducing it by more than you know $100 million from the original F. I D.
And just very excited about being able to to commence operations and we certainly look forward to the prospect of continuing to grow our customer base and our subscription levels in coming years, you know as we can.
Continue to see the northern basin, Northern Delaware Basin rampart.
So with that let him to call them Tomorrow and he'll he'll go through our detailed financial certain results.
Great. Thanks Heath and good morning, everyone I'm going to begin with a discussion of our quarterly financial performance surround the segments that comprise our core focus areas star.
Starting with the Utica shale the SMU system averaged 396 million cubic feet a day in the third quarter.
And segment adjusted EBITDA totaled 8.3 million, which was down by 2.3 million or 22% from the second quarter of 2021. The variance here was largely due to natural declines of of production from wells on the system.
Including the four well pad that was connected in March of 2021.
Which averaged just over 104 million cubic feet a day during the third quarter.
We did have two new wells connected behind the T. P O seven interconnect during the quarter.
And as of September 30th.
Are you at a customer's had 10 ducks, including another four well pad that is expected to be turned in line later this month.
For Ohio gathering segment, adjusted EBITDA totaled $6.7 million for the third quarter.
Which was approximately 2% lower than the second quarter, primarily as a result of a 2% decline in in in volumes across that system.
Four new wells were connected behind Oh G C. A during the quarter and we currently have nine ducks awaiting completion behind that system.
[noise] Williston segment, adjusted EBITDA totaled 11.3 million in the third quarter, a 17.1% increase from the second quarter.
Primarily as a result of a more favorable customer volume mix together with increased margins on P. O P contracts and lower operating expenses.
Six wells were connected behind our liquid system in the third quarter 2021, providing incremental volumes on that system.
We do have notably approximately 30, Williston wells behind our liquids focus system that are all expected to be turned on line really by the end of the first quarter of 2022 just to know this compares to eight wells connected year to date through September 30th.
Of this year.
Turning to the D. J a segment adjusted EBITDA Ah here totaled 7.4 million in the third quarter of 2.3 million dollar increase from the second quarter of 2021, largely due to a 1.8 million dollar benefit related to the settlement of a legal matter what the vendor during the quarter.
Third quarter volume in the D. J average 23 million cubic feet, a day, which was in line with the prior quarter volume throughput.
We did have one new well connected.
To the system during the third quarter and as of September 30th.
No ducks behind the D. J system. However, but we are currently in discussions with a third party to increase volumes and system utilization through a longterm all flowed agreement.
And now for the the last of our core focus areas. The Permian Basin Ah segment, adjusted EBITDA totaled approximately $600000 in the third quarter.
A slight increase relative to the second quarter, primarily due to improved product sales margins and a changing customer volume mix.
Although there were no new wells connected during the third quarter. We did recently sign multiple new commercial agreements Ah in this segment, including a new gathering or agreement with a new customer who is planning to turn in line for new wells in the fourth quarter of this year and then a separate agreement with a third party who is expected to all.
[noise] flowed up to seven and a half million cubic feet a day onto our Permian system over.
Over the over the course of the fourth quarter him into the first quarter of 2022.
Obviously with these volume catalysts, we expect to see our processing utilization Imp.
Improve and and and cash flows to be driven.
Driven higher going forward.
Our legacy areas, which include the Piceance Barnett and Marcellus segments generated $33 million a free cash flow in the third quarter. That's really based on $34 2 million a segment adjusted EBITDA in the aggregate from those segments and then an aggregate $1.2 million of Capex for the quarter.
As he'd mentioned earlier in the Barnett, our our anchor customer turned seven new wells in line of September which because they were located on a an existing pad required virtually no new summit capex in order to gather these volume. So look I'd say these are some of the most productive wells we've ever seen.
Drilled across the the the Barnett.
And in the aggregate generated 55 over 55 million cubic feet a day of production Ah representing nearly 25% of all the Barnett volumes gathered in the second quarter of this year.
And the Piceance.
One of our larger customers is expected to turn in line nine new wells during the fourth quarter of this year, which would really be the the first new well activity behind R. P. On system. Since 2018. These wells are located on acreage outside of the area, where we collect M V. C's. So these wells will generate incremental cash flow for the four.
The segment.
Further the same customer is contemplating a multiyear develop a program on the same acreage, which could result in up to 100, new wells over the next several years.
And then finally on the Marcellus system based on customer conversations we are expecting for new Marcellus walls to be turned in line here in the fourth quarter.
Now just turning back to the partnership stomach reported third quarter net income of $7 million adjusted EBITDA of 61.1 million and D. C F. A 45.7 million.
Capital expenditures totaled 5.8 million for the for the third quarter, which was $2.5 million higher than the second quarter of 2021 and.
And included $2.2 million for maintenance Capex.
The majority of third quarter, Capex was really associated with growth capital to connect new pad sites and our Utica in Williston segments.
During the third quarter summit funded all of it's doubly capital calls, where it's 70 per cent interest in doubly with borrowings under the nonrecourse credit facilities summit Permian transmission.
That's when I'll be expected to have to contribute another approximately $5 million of direct investment and doubly this year to wrap up construction and that is contemplated in our revised guy.
Guidance to be towards the lower end of our Capex range for this year.
Since we're expecting doubly to commence operations later this year I wanted to quickly outlined doubly as cash flows and the unrestricted financing emcees and a little more detail.
Casual generated by W will be distributed to its partners on a quarterly basis.
Based on each partner's proportionate ownership.
The summit distributions, which will obviously be equal to the 70%.
Triste.
That somebody hasn't doubly.
Will be used to service the interest expense and amortize the principal balance of the project finance step.
And to make cash distributions and amortize the principal balance of the subsidiary series they preferred equity.
As you'll recall, we put the subsidiary series a preferred equity in the project finance that in place over the past two years to finance our share of the doubly construction costs.
[noise] effectively over the next several years, what we're doing is as ethanol P. As delevering its balance sheet. The unrestricted subsidiaries that hold the equity interest in doubly is doing the same thing.
Creating a situation where eskimo people will have a visible opportunity at some point over the next several years to bring doubly back on balance sheet.
With respect to ethanol piece balance sheet, we had $725 million outstanding under our 1.1 billion dollar revolver is September 30th and as he's mentioned, we repaid $37 million of debt.
Outstanding under this revolver during the quarter with free cash flow generation.
Subject covenant limits are available borrowing capacity at the end of the third quarter totaled 170, and a half million dollars and with cash on hand, we had approximately $176 million in total liquidity of September 30.
Or a total leverage ratio at September 30th was 488 times compared to a maximum limit of 5.75 times and personally and leverage was 2.90 times compared to a maximum limit of 3.5.
Pro forma for the completion of our 20 twenty-two debt maturities refinancing transaction.
Including the redemption of the 2022 notes ethanol P had approximately $300 million outstanding under its new.
A b L revolver.
And barring availability of 76.1 million after accounting for $23.9 million of issued by Undrawn credit.
Barring base on the ABL revolver totaled approximately $694 million as of September 30th compared to total lender commitments of $400 million.
And with that I'll turn the call back over to <unk> for closing remarks.
Okay. Thank you Mark mm Oh, three cap obviously, we're we're very pleased with our third quarter performance and.
We are certainly excited to be able to close the refinancing and put the new credit facilities in place again. This you know refinancing of of our maturities 2022 maturities is really a transformational milestone for the partnership.
Providing both the financial floods still flexibility and and that you know maturity profile to when our business effectively now while we continue to maximize cash flow and continued to pay down debt and achieve overall leverage reduction W continues to progress well and you know very have been very impressed.
With the overall project team for their top to your execution related every step of the project and proud that they've been able to progress the project in a safe and environmentally friendly manner.
While staying materially below budget and within the expected timeline.
And finally, you know when you when you look ahead to 2022, so way too early to have a concrete view.
But we are encouraged by the strong commodity price backdrop we.
We kind of alluded to we sign to various new commercial arrangements that we're excited about and preliminary indications.
And do you see from customers or we aren't seeing some near term increases if you will particularly in the Williston the Permian and the Utica segments, we have a lot of wood to chop. So we look forward to working with our producer customers between now and early next year too you.
You know get a little more solidified view on 2022, but as I said, we're we're encouraged wood with what we've seen thus far.
I'd like to thank you for your time today and I look forward to continue next few in our strategic plan and look forward to continuing to provide a face in the future. So with that operator, I'd I'd like to open up for questions.
And thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the half tea, if you're using a speaker phone. Please pick up the handset first before pressing the numbers. Once again, if you have a question.
Please start then one on your Touchtone phone please stand by while we assemble our queue.
We have our first question from Grad Brody with Bank of America. Please again.
When it goes thank you for all of the car.
Just a few questions for you here.
Suddenly I visited you were able to realize that our margins.
Talk a little bit.
Would you mentioned sort of that or mix.
Can you talk about what's going on there.
If you'd been renegotiated contract with it.
[noise], Yeah, Hey, good morning, Greg. This is mark speaking when we talk about customer Miss obviously, we have a wide array of coke.
Are already diverse.
Operating footprint every one of those contracts have unique.
Unique and different.
Having contracts terms and rates and so when you talk about more favorable miss.
What did you take away from that is.
Higher cut.
Customers, who who have a higher gathering right representing.
A larger share of the overall volume.
Right and then you touched a little bit while you were asking about.
I'll do something more.
[noise] detail there you wouldn't know [noise].
What are your your customers.
Last year.
In terms of group activity.
Yeah. This is heath I [laughter]. So it it's still early on right I think.
Mm observed and we've talked about it on some prior calls as you know, we're certainly starting to see some pick up in activity in the first quarter.
You know like in the back in.
Particular.
But it's really early to call. It I think we're obviously you know $80 crude price environment in five to six dollar gas price environment.
Literally all drilling locations across our system, our economic at those questions not matter of growing economic I think.
Waiting to see how what are the producer budget spoke like obviously, particularly the public.
Have have been focused on you know.
Generating free cash flow and deleverage balance sheet and returning.
Shareholders, but you know I think ultimately economics are gonna went out and you know when you're looking at.
Particularly in the back in the Permian.
D J and Marshalls Utica, it's it's gotta be very difficult to make a decision not to [laughter].
Put me wells in the ground with those kind of you know the type of commodity outlook. So I think you know we.
It it's not unusual we typically won't get enough.
Firm development plans from our producers until [noise].
Mid to late in the first quarter. So I think what I think what we're signalling you kind of look at how we've Trinidad we had 20 mid 20 well connected.
Third quarter, we've got 45 wells scheduled to come along in the fourth quarter and we've seen.
Just like in the back of the examples we have more well, it's showing up in the first quarter already for next year than we had all of this year. So I think the trends were feeling pretty good about it but we Wanna, We Wanna, let all the producers get there.
You know their capital budgets their programs together and you know.
Look forward to being in a position to get some more color on the on the year, but it probably will be.
[noise] probably towards the end of the first quarter before have that data.
Full release.
And what about somebody you are proud of their private operators would you expect the same time here.
Yeah, I mean there.
Yeah, I would I would say generally speaking so I mean, yeah, well wearing having a lot of discussions now so it's not like we're we're not getting any information at this point is just everything pretty fluid you know and people are still kind of settling into.
Higher environment, So I would say.
We we would expect the private guys to probably move a little more quickly putting rig stores.
Bringing the world online and the public's just given the.
Public sentiment around.
You know producers generally have good cashflow.
And the private guys are certainly going to be more just looking in economics, and making making decisions on that basis, So, but yeah I do I do think that you know one of the.
Other benefits, we talked about the diversification customers that we have not.
Not only a wide mix of basin that were exposed to but also you know a good slug of.
Oh private and public operated on their system.
Great and then just one more for Ya.
You mentioned one double he has come in below budget, where did you go where do you expect.
The amount on the turmoil.
To be when you complete the transaction and how do you think about.
The pick feature of the preferred whether you pay that and how you how you allocate count.
The the distributions you'll receive medically.
Surely pay those checks.
Yeah.
Yeah, Hey, Greg.
So we do expect to utilize the full amount of $160 million terminal that we have in place there.
Fully financed bringing.
In service.
We tried to provide a little more detailed how cash flows would work here in our earnings release, but let me just see if I can summarize it here.
Cash is going to be distributed.
Doubly to his partner's also saw it will get 70% interest.
We will use that.
Those cash distributions to not only service the address but also advertise the principal balance of the $160 million term loan.
A residual cash and that will be residual cash will then be distributed.
Two and then see where the subsidiary series a preferred equity six and that cash will then pay the state.
Stated, 7% cash distributions on that process and.
And residual cash beyond that will be used to amortize down that the preferred equity and so if you think about that.
Credit chain, if you will.
Will be delevering.
The next several years as cash is distributed up from Dudley.
So it's.
As your opening comment and that's really helpful. Just so you can't you amortize the terminally ill people not necessarily Saturday tend to pay down debt to go would be to pay down the preferred once you.
Once you achieved your asthma.
Yeah.
That's right yeah.
Obviously, a higher cost.
Capital in that in that credit chain.
So it will be motivated incentivized to pay that down.
So so.
That's just the mechanics of how it works.
Think the key takeaway is that will be delevering that whole credit chain at the same time as we're delevering the ethanol peas recourse.
Cities on its balance sheet, creating situation, where we will have a visible opportunity over the next several years as W is ramping up.
Bring it on balance sheet in the very credit accretive manner.
I'd also just add.
That doubly.
Asset it is truly an asset.
Every dollar that we pay down every dollar austere series.
A preferred equity that we pay down as another dollar of equity values that accrues to estimate.
Stakeholders.
I just find it a little interesting.
Contractor has just around the value of doubly and how that either included or not included in our current market cap.
It would appear that the value of that deadly asset.
Is.
De Minimis here, particularly if you look now values multiples the other.
Long haul regulated pipes up.
<unk> originally.
Ah you're pointing out the values has come up with.
Okay.
So long term off it cause it sucked.
King you would consider.
If somebody were getting heavier.
Okay, Yeah, okay.
I mean, there's certainly I mean.
[laughter] it extended we can I mean like our priorities are pretty clear right.
Looking to accelerate Delevering.
The balance sheet and we're also.
Also kind of focus on top one EBITDA growth, so I, but your point is.
If someone comes in and offered a valued that we thought was reflective of the equity.
Value of the car.
We'd certainly take a look at it.
But it's it's not kind of the base case, but it is something that we would obviously.
Entertain it you know, it's a bit of a drive in.
Is pretty notable I mean, when you just look at the.
EBITDA.
The additional color we provided here [laughter] and you do the math on what happened like that where.
You could you could look at.
Doubly being.
Just the equity value doubly is probably as much or more than than what our market cap is today right. So what we're really focused on is just looking to make sure that I understood and eliminated.
Price and.
But yeah, well it would clearly be.
We'd look at the economics, if there was a.
The the good that came in the door, but nothing that we're proactively out looking to do our our long term goal or near to long term goal is to get the pipeline fully subscribed potentially get chief the expanded capacity.
Scribe and then eventually kind of rolling that into the balance sheet and we think that's kind of the base case and and what what we think will drive the most value for some of it this time.
Oh.
Thank you for the time and helpful answers that suspicious.
Great. Thank you.
And thank you Sir.
And we have no further questions at this time.
Ladies and gentlemen, thank you [laughter] conclusion, a conference call. We thank you for participating you may nowadays.
[noise] [music].
[music].
[music].
Welcome to the Q3 2021 summit Midstream partners L. P earnings Conference call. My name is Vanessa and I will be your operator for today's call. 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 second if you have a quest.
Jen. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded.
I will now turn the call over to your host Mr. Ross Wong.
Yeah.
Thanks, operator, and good morning, everyone.
You don't already have a copy of our earnings release that was issued earlier. This morning. Please visit our website at Www Dot summit midstream Dot com, where you'll find it on the homepage events and presentations section or quarterly results section.
With me today to discuss our third quarter of 2021 financial and operating results is Heath Deneke, Our President Chief Executive Officer, and Chairman, Marc Stratton, Our Chief Financial Officer, along with other members of our senior management team.
We start I'd like to remind you that our discussion today may contain forward looking statements.
These statements May include but are not limited to our estimates of future volumes operating expenses and capital expenditures.
They may also include statements concerning anticipated cash flow liquidity business strategy other plans and objectives for future operations.
Although we believe that the expectations reflected in such forward looking statements are reasonable 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 four 2021.
Well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results.
Please also note that on this call we use the terms EBITDA adjusted EBITDA and distributable cash flow. These are non-GAAP financial measures and we've provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release.
That I will turn the call over to Heath.
Alright, great. Thank you Ross and good morning, everyone.
So as this morning summit reported third quarter financial and operating results of $61 1 million of adjusted EBITDA, which for the third consecutive quarter exceeded our internal expectations.
We had 20, new wells connected during the quarter, which includes seven wells in the Barnett and six crude and more wells in the Williston.
The 17th Barnett Wells are the first new wells that have been turned online on our system since 2019, and the well results are really.
The best that we've seen in the play.
Salt life experienced a 30 day Ips in excess of 55 million a day of gas in the aggregate.
During the quarter. We also continued to utilize free cash flow to delever, the balance sheet and achieved another 37 million of debt pay down in the third quarter, which brings us up to a $132 million of debt pay down year to date.
That enabled us to end the quarter with total leverage ratio of just under four nine times EBITDA.
So as we look forward to the fourth quarter, we expect to continue building momentum with approximately 45, new wells that are scheduled to turn our turn in line by the end of the year.
So given that our financial outperformance to date together with a steadily improving outlook for the business. Overall, we now expect full year 2021, adjusted EBITDA guidance to be or EBITDA results to be near the high end of our previously announced guidance range of $225 million to $240 million.
Additionally, we expect our full year 2021 capital guidance to come in towards the low end of the range.
Which was a $20 million to $35 million guidance.
And its range subsequent to quarter end and we've made significant progress advancing our two top priorities for the year when included refinancing our $1 billion of debt that was maturing in 2022.
As well as further furthering the development of the double H pipeline.
As noted in our earnings release, we've made significant progress on each of these and I'd like to spend some time and provide some additional details.
First turning to the refinancing on Tuesday, we announced the closing of our new four and a half a year $400 million ABL revolver, and a new $700 million second lien secure.
<unk> notes.
The closing of these credit facilities really marks a turning point for summit and its a culmination of two years of effort to really transform the balance sheet and position for this refinancing.
Since the end of 2019 was employed a strategy centered around maximizing free cash flow and to prioritize debt repayment.
New credit facilities are we further demonstrated its commitment to improving the balance sheet and restructured the ABL revolver and our second lien notes in a way that really enables us to allocate up to 300 million of excess free cash flow, which is effectively cash generated from operations less capital expenditures that we can apply towards repaying our higher cost second lien.
Debt.
This structure reflects our commitment to focus on delevering, the balance sheet by targeting absolute debt reduction as well as growing our underlying EBITDA, which are really the top priorities that we're gonna be focusing on going forward.
And together, we think this focus will enable us to continue unlocking value up and down the entire capital structure.
The ABL revolver is also more covenant light compared to our recently retired cash flow base revolver.
And it provides us with not only ample liquidity, but also additional flexibility to continue to execute on our balance sheet transformation, while also providing an avenue to pursue value added growth opportunities.
With the net proceeds of the new credit facilities, we were able to extinguish the $725 million balance on our revolver, which was scheduled to mature in may of 2022 as well as the 234 million principal balance of the 2022 notes, which was scheduled to mature in August 2022.
So effectively that's a holistic refinancing solution eliminates our near term refinancing risk.
Create a three and a half year.
Runway, if you will until our next scheduled debt maturity.
And provide substantial covenant flexibility really to manage any kind of unexpected delays or downturn of development activities around our system.
Yeah.
Turning now to double our other top priority.
<unk> continues to progress very well, we were able to achieve mechanical completion of the pipeline in October.
Our 2021.
And we expect to be able to place the project in service during the fourth quarter.
This year and potentially as early as you know by the by the end of November.
And now that we're nearing the end of construction. We are pleased to announce a further reductions now that we're able to achieve on the project budget, which is expected to be approximately $400 million in total which is roughly $280 million net to summit for its 70% interest in the project.
As a reminder, <unk> has.
A bcf a day under contract are approximately 75% of its initial 1.35 Bcf a day of total throughput capacity.
These are committed commitments are long term commitments take or pay style commitments from some of the largest in the.
The active producers in the Delaware basin, including Exxon in marathon oil.
Upon commissioning them leave will begin service under the first annual contract period at roughly 600 million a day of ft commitments.
And those will step up throughout the first three years of service such that by year four definitely we're in take or pay revenue on a full one bcf a day of contracts currently in hand.
Furthermore, as our activity levels and production in the northern Delaware continue to build momentum with the improving commodity price outlook.
Do you expect to be able to fill the remaining 350 million a day of available firm capacity over the next several years.
Is it upon initial in service, we expect double lead to well definitely will be connected with five natural gas processing plants in the northern Delaware Basin and its also interconnected with two of the largest newest downstream pipelines are originating in Oaxaca region.
Which will provide double east customer were very desired access to growing LNG export markets in the Gulf Coast region.
Beginning in year four following start up and assuming that double he is fully subscribed at at current market rates, we would expect <unk> to generate approximately $45 million of EBIT.
And that would be net to summit, 70% interest in the asset.
On an earnings basis represents really a build multiple of around 625 times.
Look relative to the trading multiples of other long haul pipes of this like we expect I believe will contribute significant residual equity value to ethanol P.
Additionally to the extent future demand exceeds the initial 135 Bcf per day of capacity.
The system has the ability to expand its capacity to approximately two bcf a day on a very cost effective basis simply just with the installation of midpoint compression.
Of course, this would would dramatically increase or improve the build multiple as well if we were able to achieve that two bcf of subscriptions that will be incremental costs associated with that expansion.
And so look I, obviously, where we're very excited to be able to not only announce it we're weeks away from being able to put the pipeline in service that we've made additional games.
On the capital budget, reducing it by more than.
$100 million from the original.
And just very excited about being able to to commence operations and we certainly look forward to the prospect of continuing to grow our customer base and our subscription levels in the coming years as we continue to see the northern basin, Northern Delaware Basin the ramp up.
So with that I'd like to hand, the call over to Mark and he'll he'll go through our detailed financial certain hurdles.
Great. Thanks Heath and good morning, everyone I'm going to begin with a discussion of our quarterly financial performance around the segments that comprise our core focus areas starting with the Utica shale. The SMU system averaged 396 million cubic feet a day in the third quarter.
And segment adjusted EBITDA totaled $8 3 million.
It was down by $2 3 million or 22% from the second quarter of 2021. The variance here was largely due to natural declines of production from wells on the system <unk>.
Including the four well pad that was connected in March of 2021.
Which averaged just.
Over a 104 million cubic feet a day during the third quarter.
We did have two new wells connected behind the T. P. L seven interconnect during the quarter.
And as of September 30th.
Our Utica customers had 10 ducks, including another four well pad.
That is expected to be turned in line later this month.
For our Ohio gathering segment.
EBITDA totaled $6 $7 million for the third quarter.
Which was approximately 2% lower than the second quarter, primarily as a result of a 2% decline in volumes across that system.
Four new wells were connected behind Oh, Gee see during the quarter and we currently have nine ducks are awaiting completion behind that system.
Williston segment, adjusted EBITDA totaled $11 3 million in the third quarter, a 17, 1% increase from the second quarter.
Primarily as a result of a more favorable customer volume mix together with increased margins on P. O P contracts and lower operating expenses.
Six wells were connected behind our liquid system in the third quarter 2021 providing.
Providing incremental volumes on that system are we do have notably approximately 30 Williston wells behind our liquids focused system that are all expected to be turned in line really by the end of the first quarter of 2022.
Just to know this compares to eight wells connected year to date.
Through September 30.
Of this year.
Turning to the D J.
Segment adjusted EBITDA here totaled $7 4 million in the third quarter of $2 $3 million increase from the second quarter of 2021, largely due to a 1.8 million dollar benefit related to the settlement of a legal matter with the vendor during the quarter.
Third quarter volume in the D. J averaged 23 million cubic feet, a day, which was in line with the prior quarter volume throughput.
Did have one new well connected.
To the system during the third quarter and as of September 30, we had no ducks behind the DJ system. However, we are currently in discussions with a third party to increase volumes and system utilization.
Through a long term offload agreement.
And now for the the last of our core focus areas. The Permian Basin, our segment adjusted EBITDA totaled approximately $600000 in the third quarter.
A slight increase relative to the second quarter.
Merrily due to improved product sales margins and a change in customer volume mix.
Although there were no new wells connected during the third quarter. We did recently sign multiple new commercial agreements are in this segment, including a new gathering agreement with a new customer who.
Who is planning to turn in line four new wells in the fourth quarter of this year.
And then a separate agreement with a third party, who is expected to off load up to $7 5 million cubic feet a day onto our Permian system.
Over the over the course of the fourth quarter and into the first quarter of 2022.
Obviously with these volume catalysts, we expect to see our processing utilization.
Proof and AR and cash flows to be driven higher going forward.
Our legacy areas, which include the Piceance Barnett and Marcellus segments generated $33 million of free cash flow in the third quarter.
And that's really based on $34 2 million of segment adjusted EBITDA in the aggregate from those segments and then an aggregate $1 $2 million of Capex for the quarter.
As Heath mentioned earlier in the Barnett are our anchor customer turned seven new wells in line in September which because they were located on an existing pad.
Required virtually no new summit Capex in order to gather these volumes. So look I'd say these are some of the most productive wells we've ever seen drilled across the the Barnett.
And in the aggregate generated 55 over 55 million cubic feet a day of our production.
Representing a nearly 25% of all the Barnett volumes gathered in the second quarter of this year.
In the Piceance.
One of our larger customers is expected to turn in line nine new wells during the fourth quarter of this year.
Which would really be the first new well activity behind our Purion system. Since 2018. These wells are located on acreage outside of the area, where we collect N V. CS. So these wells will generate incremental cash flow for the for the segment.
Further the same customer is contemplating a multiyear development program on the same acreage, which could result in up to a 100, new wells over the next several years.
And then finally on the Marcellus system are based on customer conversations.
We are expecting for new Marcellus wells to be turned in line here in the fourth quarter.
Now just turning back to the partnership.
Summit reported third quarter net income of $7 million adjusted EBITDA of $61 1 million.
And DCF of $45 7 million.
Capital expenditures totaled $5 8 million for the third quarter, which was $2 $5 million higher than the second quarter of 2021.
And included $2 $2 million of maintenance Capex.
The majority of third quarter, Capex was really associated with growth capital to connect new pad sites in our Utica in Williston segments.
During the third quarter summit funded all of its double the capital calls for a 70% interest in doubly with borrowings under the non recourse credit facilities at summit Permian transmission.
<unk> expects to have to contribute another approximately $5 million of direct investment in <unk>. This year to wrap up construction and that is contemplated in our revised Ah.
Guidance to be towards the lower end of our Capex range for this year.
Since we are expecting double each commence operations later this year I want to quickly outline double lease cash flows and the unrestricted financing entities in a little more detail.
Cash flow generated by double Eagle will be distributed to its partners on a quarterly basis.
Based on each partner's proportionate ownership.
The summit distributions, which will obviously be equal to the 70% <unk>.
<unk>.
That summit Hasnt doubly.
We will be used to service the interest expense and amortize the principal balance of the project finance debt.
And to make cash distributions and amortize the principal balance of the subsidiary series a preferred equity.
As you'll recall, we put the subsidiary series a preferred equity in the project finance debt in place over the past two years to finance our share of the doubly construction costs.
Effectively over the next several years.
What we're doing is ethanol P is delevering its balance sheet. The unrestricted subsidiaries that hold the equity interest in <unk> is doing the same thing.
Creating a situation where ethanol people will have a visible opportunity at some point over the next several years to bring <unk> back on balance sheet.
With respect to ethanol piece balance sheet, we had $725 million outstanding under our $1 $1 billion revolver at September 30th and as Heath mentioned, we repaid $37 million of debt outstanding.
Outstanding under this revolver during the quarter with free cash flow generation.
Subject to covenant limits, our available borrowing capacity at the end of the third quarter totaled a 170 and a half million dollars and with cash on hand, we had approximately $176 million in total liquidity as of September 30.
Our total leverage ratio at September 30th was $4 eight eight times compared to a maximum limit of 575 times and first lien leverage was 290 times compared to a maximum limit of three five.
Pro forma for the completion of our 2022 debt maturities refinancing transaction.
Including the redemption of the 2022 notes ethanol P had approximately $300 million outstanding under its new.
ABL revolver.
And borrowing availability of $76 1 million after accounting for $23 9 million of issued but undrawn letters of credit.
Our borrowing base on the ABL revolver totaled approximately $694 million as of September 30th compared to total lender commitments of $400 million.
And with that I'll turn the call back over to Heath for closing remarks.
Thank you Mark.
To recap obviously, we're very pleased with our third quarter performance and we are certainly excited to be able to close the refinancing and put the new credit facilities in place again this.
The refinancing of our maturities 2022 maturities is really a transformational milestone for the partnership.
Regarding both the financial flex still flexibility and and debt maturity profile to run our business effectively while we continue to maximize free cash flow and continued to pay down debt and achieve our overall leverage reduction double he continues to progress well and you know very have been very impressed.
With the overall project team for their top tier execution really at every step of the project and proud that they've been able to progress the project in a safe and environmentally friendly manner.
While staying materially below budget and within the expected timeline.
Finally, you know what.
When we look ahead to 2022, it's still way too early to have a concrete view.
But we are encouraged by the strong commodity price backdrop.
We've kind of alluded to we signed our various new commercial arrangements that were excited about them and preliminary indications are we're starting to see from customers or we are seeing some near term increases if you will particularly in the Williston in the Permian and the Utica segments, we have a lot of wood to chop. So we look forward to working.
Our producer customers between now and early next year or two.
You don't get a little more solidified view on 2022, but as I said, we're encouraged with what we've seen thus far.
We'd like to thank you for your time today, and I look forward to continuing to execute on our strategic plan and look forward to continuing to provide updates in the future.
With that operator, I'd like to open the call up for questions.
And thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the half's key if.
If youre using a speakerphone please pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone. Please standby, while we assemble our queue.
Yeah.
We have our first question from Gregg Brody with Bank of America. Please begin.
Yeah.
Good morning, guys.
Thank you for all the color.
Just a few questions for you here.
Some of your businesses, you were able to realize better margins.
Can you just talk a little bit.
But you mentioned sort of better mix.
You talk about what's going on there is if there is have you been able to renegotiate contracts with it.
Your line.
Yeah, Hey, good morning, Greg. This is mark speaking when we talk about customer mix, obviously, we have a wide array of costs.
You are already diverse.
Operating footprint every one of those contracts have.
Unique and different.
Gavin contracts terms and rates and so when you talk about more favorable mix.
What you should take away from that is.
Higher.
Who have a higher gathering rate representing a big.
Larger share of the overall volume.
Right and then you touched a little bit on what are you. So we are optimistic about activity on new clinical into more detail there.
What are your customers, indicating to you last year.
In terms of increased activity.
Yeah. This is heath.
So it's still early on right.
We have.
Observed and we've talked about on some prior calls as you know, we're certainly starting to see some pickup in activity in the first quarter.
And in the Bakken in particular.
But it's really early to call that I think we're obviously in a $80 crude price environment and five to $6 gas price environment literally all drilling locations across our system are economic at those prices might not matter of drilling economics, I think well wait.
No waiting to see is how what are the producer budgets look like obviously, particularly the public.
E&ps have been focused on.
Generating free cash flow and deleverage the balance sheet and returning.
Our shareholders, but I think ultimately economics are going to win out and you know when youre looking at in.
Particularly in the Bakken and the Permian.
Jay.
Marcellus Utica.
It's got to be very difficult to make a decision not to invest in.
But putting new wells in the ground with what those kind of you know the type of commodity outlook. So I think you know we.
It is not unusual we typically wont get enough.
Firm development plans from our producers until mid.
Mid to late in the first quarter. So I think what I think what we're signaling is if you kind of look at how we've turned it up we had 20 mid 'twenty well connects in the third quarter. We got 45 wells scheduled to come online in the fourth quarter and we've seen.
Just like in the Bakken for example, we have more wells showing up in the first quarter already for next year than we had all of this year. So I think the trends you know, we're feeling pretty good about it but you know we want to we want to let all of the producers you know get there.
You know their capital budgets their programs together.
Look forward to being in a position to give.
Get some more color on the on the year, but it probably will be.
Yeah.
Probably towards the end of the first quarter, but we'll have that data that we feel comfortable releasing.
And what about some of the private area private operators would you expect the same timing.
I'm just curious it yeah I mean there.
Yeah, I would I would say generally speaking so I mean, well, we're having a lot of discussions now so it's not like we were not getting any information at this point, it's just everything pretty fluid.
You know when people are still kind of settling into.
Tire environment So I.
I would say.
We would expect the private guys to probably move.
A little more quickly putting rigs to work.
And bringing new wells online in the public's just given the you know the.
Public sentiment around.
You know producers generate free cash flow.
And the private guys are certainly going to be more just looking at economics, and making decisions on that basis. So.
But yeah I do how do you think that you know one of the other benefits. We talked about is just the diversification of customers that we have but.
Not only a wide mix of basins that we're exposed to but also you know a good slug of.
Oh, private and public operators on our system.
Great and then just one more.
More for you.
You mentioned a couple of years to come in below budget, where do you where do you expect.
The amount drawn on the term loan.
To be when you complete the transactions and how do you think about.
The Pik feature of the preferred whether you pay that.
How you allocate it.
The distributions you received from that.
<unk>.
That's purely paid.
Hey.
Hi, Mark.
Yeah, Hey, Greg.
So we do expect to utilize the full amount of that $160 million term loan that we have in place there.
Fully financing, bringing doubly in service.
We tried to provide a little more detail about how cash flows which would work here in our earnings release, but let me just see if I can summarize it here.
Cash is going to be distributed.
Doubly to its partners, obviously saw it will get a 70% interest.
We will use that.
Cash distributions to.
To not only service the interest, but also amortize the principal balance of the $160 million term loan.
Residual cash and there will be residual cash will then be distributed.
So, let's see where the subsidiary series a preferred equity sits in that cash flow and then pay the.
As stated 7% cash distributions on that prep.
And residual cash beyond that will be used to amortize down that that that preferred equity and so as you think about it that.
Credit chain, if you will.
We'll be delevering.
The next several years as cashes distributors up from Dudley.
So it is.
As your opening comment and that's really helpful. Just so you would see country amortize. The term loan you will not necessarily service tend to pay down debt. The goal would be to pay down the preferred once you.
Once you've achieved your Apple.
Is it.
That's right yes.
It's obviously a higher cost.
These capital in that in that credit chain.
So it will be motivated and incentivized to pay that down.
So so look but thats just the mechanics of how it works I think the key takeaway is that we'll be delevering that whole credit changed at the same time as we're delevering to ethanol piece recourse credit facilities on its balance sheet, creating situations, where we will have a visible opportunity over the next several years.
<unk> is ramping up.
To bring it on balance sheet, and a very credit accretive manner.
I'd also just add.
Think about that <unk>.
Asset it is truly an asset.
Every dollar of debt, we paid down every dollar of subsidiaries series.
A preferred equity that we pay down.
Another dollar of equity value that accrues to <unk> and its stakeholders.
Just find it a little interesting.
And kind of scratch our heads just around the value of <unk> and how that's either included or not included in our current market cap.
It would appear that the value of that asset.
As you know.
De Minimis here, particularly if you think about values multiples that other.
Long haul regulated pipes up.
Commanders in the Montney originally.
You pointed out.
Thank you Shane.
Ill take a long term asset.
Kim you would consider divesting.
If somebody were to occur.
Okay.
Okay.
I mean, it certainly I mean look.
Where.
To the extent, we can I mean like our priorities are pretty clear right, we're looking to accelerate delevering.
The balance sheet and we're also well.
We're also kind of focus on top line EBITDA growth, so but to your point is.
No.
If someone comes in and offer the value that we thought was reflective of the equity value.
I think we'd certainly take a look at it but it's it's not kind of a base case, but it is something that we would obviously.
Entertain it.
The bid or drive.
It is pretty notable I mean, when you just look at this.
Ebitdas and the additional color we provided here and you do the math on what assets like that word.
You can look at.
<unk> being.
Just go to equity value double he is probably as much or more than what our market cap is today right. So what we're really focused on is is just looking to make sure that that valuation is understood and eliminated.
Our unit price.
But yeah, we would clearly be we'd.
We'd look at the economics, if if there was a.
I bet that keeps the door, but nothing that we're proactively outlook into our long term goal or near to long term goal is to get the pipeline fully subscribed potentially you don't get the expanded capacity.
Scribe and then eventually kind of rolling that into the balance sheet and we think that's kind of the base case and what we think will drive the most value for something at this time.
Got it.
For the time and helpful answers have sufficient.
Great. Thank you.
And thank you Sir.
And we have no further questions in queue at this time.
Ladies and gentlemen, thank you. This concludes our conference call. We thank you for participating you may now disconnect.