Q4 2021 DT Midstream Inc Earnings Call
Good morning, My name is Kristen I'll be your conference operator today at.
At this time I'd like to welcome everyone to the <unk> Midstream fourth quarter 2021 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Todd Gordon Director of Investor Relations you may begin.
Good morning, and welcome everyone before we get started I would like to remind you to read the safe Harbor statement on page two of the presentation.
Including the reference to forward looking statements.
Our presentation also includes references to non-GAAP financial measures. Please refer to the reconciliation to GAAP are contained in the appendix.
Joining me this morning are David Slater, President and CEO and Jeff <unk>.
<unk>, Vice President and CFO .
I'll now turn it over to David to start the call.
Thanks, Todd good morning, and thanks, everyone for taking the time to join us today.
Starting on slide three.
We had an excellent year in 2021, which mark our transition to a new independent public company.
Looking back on the accomplishments throughout the year I could not be more proud of the team and I'd like to thank them for the job they've done.
First we executed the spin off from DTE energy with a successful debt raise and equity trading the view.
We delivered strong financial performance with industry, leading organic growth.
Exceeded our revised guidance ranges and delivered distinctive total shareholder return for our investors.
Our commercial team did a great job advancing your five year investment plan.
We've added new customers in both our pipeline and gathering segments.
Then just before the end of the year, we executed new agreements for the first phase of our Haynesville wellhead to water system expansion.
As of today, approximately 50% of our five year investment plan has been committed to organic growth opportunities across our asset portfolio.
We also continued to advance our best in class ESG initiatives.
And we're the first company in North America to offer a carbon neutral pipeline system expansion.
We made great progress advancing our carbon capture and storage opportunity in Louisiana and announced a new strategic partnership to advance hydrogen development projects with Mitsubishi.
<unk> as of the new year is now fully separated and operating independently from DTE under a strong C Corp governance framework.
Let's turn to slide four.
Moving forward the company is well positioned for continued success we.
We expect to maintain our strong financial performance.
We are increasing our 2022 adjusted EBIT guidance.
Delivering 8% growth from our 2021 original guidance midpoint.
Our primary focus is now on 'twenty three and beyond so we're providing our 'twenty three early outlook for adjusted EBITDA, which reflects continued organic growth and confidence in our core businesses.
We are increasing our quarterly dividend by 7%, reflecting our strong financial performance and we plan to continue to grow our dividend in line with cash flows long term.
As I mentioned earlier, 50% of our one two to $1 7 billion five year investment.
Investment plan is committed to organic projects that achieve attractive returns.
We remain focused on our disciplined investment criteria and will only invest in projects that create shareholder value.
Looking forward at our ESG initiatives, we will continue executing on our net zero by 2050 goals.
Key areas of focus for us include carbon capture and storage.
Hydrogen and offering our customers low carbon service options.
Our goal is to integrate all aspects of our ESG initiatives.
So the everyday operations of the company.
Finally, we look forward to publishing our inaugural sustainability report in the second quarter of this year.
I'll now pass it over to Jeff, who will cover our financial results and guidance.
Thanks, David and good morning, everyone.
Start on slide five.
Our well positioned assets and strong contracts continue to deliver premium growth.
In 2021, adjusted EBITDA was $768 million, which was $58 million higher than the prior year.
Representing 12% growth versus our 2020 original guidance midpoint.
Operating earnings were $336 million in 2021, which was $36 million higher than the prior year.
2021 marks the second year in a relative to your guidance for both adjusted EBITDA and operating earnings, let's turn to slide six to talk more about our 2021 results.
Our 2021 growth in both adjusted EBITDA and operating earnings were primarily driven by the performance in our pipeline segment.
Which included the benefit of a full year of leaf and service and.
And increased earnings from our Interstate pipeline joint ventures.
In 2021, the pipelines segment comprised 53% of our business mix and increased from 49% in 2020.
Additionally, strong volumes contributed to our performance in this gathering segment in 2021.
With volume growth of approximately 20% throughout the year.
Let's now turn to slide seven to discuss our updated 2022 guidance.
We are increasing both our adjusted EBITDA and operating earnings guidance for 2022.
The increased 2022, adjusted EBITDA guidance range is 770 $810 million.
And the midpoint represents 8% growth over our 2021 original guidance midpoint.
Our increased 2022 operating earnings guidance range is $319 million to $335 million.
And these guidance ranges and includes the impact of a full year of new interest expense and public company costs.
Let's turn to slide eight to discuss our dividend increase.
In addition to delivering strong earnings growth. We are also increasing our quarterly dividend by 7%.
To <unk> 64 per share, which equates to an annualized dividend of $2 56.
This dividend increase is in line with our financial policy of maintaining at least a two times coverage ratio floor.
And our current coverage ratio stands at approximately two four times.
Due to our long term contracted cash flows.
We were able to support a durable dividend.
And we plan to continue to grow our dividend in line with cash flow long term.
Let's turn to slide nine and ill discuss our 2023 early outlook.
As David discussed give.
Given our high confidence in our business and its future growth. We have provided an early outlook for 2023 adjusted EBITDA.
Which we expect to be between 810 and $850 million.
This outlook is supported by accretive growth coming from organic investment opportunities.
That are underpinned by long term contracts.
In both the Haynesville and Appalachia and across both our pipeline and gathering segments.
David will provide more detail on these growth investments later in the call.
Let's now turn to slide 10 to talk about our strong cash flow generation.
<unk> midstream strong cash flow provides multiple pathways to maximize value for our shareholders.
We expect distributable cash flow to be between 575 and $625 million for 2022.
Which provides significant flexibility in the ways, we create value.
We believe the most effective way to create value is through highly accretive organic growth investments that align with our core business.
We have a substantial set of growth opportunities in front of us.
We will evaluate to ensure that indeed, our disciplined.
<unk> criteria.
Another key component of our value creation for shareholders is delivering a reliable and durable dividend that grows in line with cash flows.
And the final piece of our value creation plan is ensuring that our balance sheet is well positioned with respect to our investment plan and changing market cycles.
Our financial policy for leverage is to maintain a debt to adjusted EBITDA ratio of less than four times.
Which is enabled by our self funded growth investment plan.
And the natural deleveraging that occurs as our adjusted EBITDA grows.
I'll now turn it back over to David <unk>.
More detailed on our growth investments.
Thanks, Jeff over.
Over the course of the past year, we have made significant progress solidifying our growth investment plan. Our 2022 capital guidance reflects this progress and we expect total capex to be between 350 and $400 million.
With $320 million to $360 million being deployed towards accretive growth projects.
Touching on some of our recently executed an upcoming growth investments in 2021, we placed into service.
The vector Blue water Energy center lateral.
We executed on expansions of our Blue Union system in the Haynesville, which included at treating plant expansion and connections with three new customers.
In 2022, we are investing in expansion to serve areas of growing Appalachian production, including the Stonewall pipeline in the Appalachia gathering system.
In Michigan, we are converting a significant portion of our gathering system to an intra state pipeline.
Which is supported by a 20 year utility contracts.
Finally, we have executed new agreements, where our phase one expansion of our Haynesville gathering system.
Which will result in a multi year investment to connecting increasing haynesville supply to growing LNG export demand.
Let's turn to slide 12, and I'll discuss in greater detail, our newly announced Haynesville system expansion.
The fundamentals around our Haynesville system continue to be strong with expected growth in both the production.
And LNG exports.
Excited to announce that we have executed agreements with our largest haynesville producer southwestern energy they will expand the system over a multi year timeline.
The expansion includes 500 million a day of gathering.
400 million, a day of incremental treating and 300 million a day of additional lead capacity that will utilize electric compression.
This expansion preserves the option for a certified carbon neutral wellhead to water pathway for our customer.
Second phase of the expansion is in advanced development and we are currently inactive discussions with multiple Counterparties, we will update you on phase two as it evolves.
Let's turn to slide 13 now.
Looking ahead at our organic growth opportunity set we are highly confident in our commercial ability to continue advancing projects.
In the pipeline segment will remain highly focused on our phase II Haynesville expansion and continued commercial discussions with participants in the recent Mexico open season.
On Millennium, we're focused on renewing our anchor shipper contracts.
And we recently executed approximately 400 million a day of long term capacity renewals with these customers.
And the gathering segment, we look to build upon the success, we had and continue to grow and add new third party historically median system.
We are also working on new opportunities in Appalachia.
On our Appalachian gathering Antero gathering systems.
Finally, we are very excited about developments in our emerging third platform, which represents accretive energy transition investments.
We continue to advance our Louisiana.
Carbon capture and storage project towards the EPA class six permanent application filing.
We continue to work with our strategic partner on evaluating and advancing multiple hydrogen project development.
Opportunities.
Let's turn to slide 14, and I would like to discuss aspects of our ESG program in more detail.
EQM continues to focus on developing an industry, leading ESG program.
I've already addressed or environmental focus so I'd like to touch on social and governance dimensions.
The social front.
Stablish, a $4 million community charitable fund this along with our employee volunteerism program will enable the ATM to be a highly engaged community partner.
Across our entire operational footprint.
We believe this is a hallmark of successful companies. Additionally, we implemented a new talent management program that improves away, we attract and retain diverse talent.
And we continue to strengthen our safety culture, leveraging industry, leading best practices.
On the governance side <unk> setup with strong CCAR governance led by our highly engaged independent and diverse board with an established ESG Subcommittee our management team's long term incentive plan.
It's tied to total shareholder return.
Our success and our shareholder success are firmly linked.
Finally, as I mentioned earlier, we will be publishing our inaugural sustainability report in the second quarter of this year that will provide a complete picture of all of these important elements.
Let's now turn to slide 15, and I'll wrap up the presentation.
In summary, we had a great first year and are firmly on track to deliver accretive growth in 2022 and 2023.
We have a focused strategy and a robust set of development opportunities that positions us for distinct performance over the long term.
And with that we can now open up the line for questions.
If you'd like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
Just wanted to start off with the Haynesville if I could.
With all of the production growth there I think there is a focus in the industry bottlenecks and egress, there and we've seen new projects announced.
Potential projects announced here. So I'm just wondering if you could touch on I guess.
How much expansion capacity.
Could the pipeline.
Fully maximize bandwidth compression more low hanging fruit there.
And just wondering whats the timeline for that could be and how.
This offering could compare to some of the newer potential project.
Announcements we've seen.
Sure Jeremy.
So I think we've mentioned this in the past that we can.
Can be expanded up to above two bcf a day so with.
What we shared here today.
There is still a significant runway.
That we're working on and Thats really contemplated in our phase two.
Expansion work.
We're talking to multiple parties about right now so.
To extent.
When we look at the competitive landscape I think we have a leg up on.
Many of our competitors.
And that our assets are in the ground.
The expansion work that needs to be done is.
It's a little simpler for us primarily compression.
<unk>.
That allows us to have a very competitive offering.
Allows us to execute quicker.
We've also position this asset is carbon neutral.
I mentioned swim.
It's very aligned with their strategic objectives for our responsibly sourced natural gas and with one of our biggest customers nears, our long term desires for low carbon LNG cargoes.
So we believe we're in a really good competitive position right now in the basin and our commercial focus is really.
Two.
To bring more customers to our asset footprint there.
Got it that's helpful. Thanks for that.
Turning to your phase one haynesville wells up to what the project on slide 12.
Just wondering if you could provide any color I guess on how the commercial environment today.
Paul do.
Do you expect here similar to what you've signed in the past.
Marketplace difficult at this point.
Yes.
You can expect it's a pretty competitive market environment right now with a number of projects.
Announce.
But I would say generally speaking the rates that we're realizing are consistent with.
Kind of our what I'll call our anchor rates for lack of a better word the original indigo agreements.
But.
It's competitive and again I'll go back to my earlier comment is that because we have pipe in the ground and we're flowing gas.
Into the LNG complex today, we didn't have.
Wake up on some of the competitors in that regard that we're already flowing demonstrated service.
And again this carbon neutral pathway.
It's being well received in the market, it's a differentiator for us.
We're optimistic that we're going to be able to do another wave here or phase two ways.
Got it and just one last political quick.
MVP.
Another hurdle.
Lot of questions around it.
Yeah.
Mark.
Just wondering.
How much.
How that could look like based on production I guess.
More specifically.
Normal.
Paul.
What's left.
How quickly that.
Yes, that's that's been.
A hot topic in Appalachia.
Over the last couple of weeks here is is.
As they run into additional headwinds I would say generally speaking it feels like that project is delayed at least another year.
It will be.
It continues to keep the base and tight.
It's been tight it continues to be tight.
There is a strong price signal being delivered into the basin to drill and grow production.
So.
The some of the favorability that we've seen in our results that we just discussed.
Came from our our Interstate pipelines.
And I've talked about that in the past that we've been seeing favorability on Nexus.
As we've been able to take some of those shorter term firm contracts and push them out to longer term.
Higher rates, we continue to see that playing out in the market as it continues to tighten up.
We're also seeing.
A lot of interest in our in our link asset in particular, the Stonewall pipeline.
It also serves the mid Atlantic market, So our Stonewall system connects with.
<unk> system.
And as a pathway into the mid Atlantic market. So.
Generally speaking, we're seeing favorability across our portfolio as a result of these construction constraints.
The mountain valleys dealing with right now.
Yes.
Coca Cola.
But the model.
Just give us an update.
Yes.
Hello.
Muscle outlook.
Hello.
While we continue to work with the <unk>.
Parties that participated.
And the open season, and just to remind everybody on the call. There were really two key elements to that open season, one related to generation pipeline.
Which is the asset we want.
Want to connect directly to Nexus that serves that greater Toledo market.
And the other was.
Expanding the access to supply.
On our Tennessee interconnect.
So we continue to work through the details there.
With interested parties.
And we continue as I said earlier to work.
A lot of parties are looking at taking.
Taking those shorter term firm agreements and extending the note and again, we're just seeing.
A lot of interest in that.
<unk>.
Interest debt at very favorable rates from our perspective so.
It's a positive environment right now around Nexus and commercially we are just working to capture some of that value and lock it in.
Got it.
<unk> been helpful.
Sure.
Thanks, Jeremy.
The next question is from John <unk> with Goldman Sachs. Your line is open.
Hey, guys. Good morning, Thanks for squeezing me in after those.
Just wanted to follow up on maybe on the expansion.
Can you talk about kind of what interest Youre seeing for maybe this phase two is it is it.
More on the ship on the producer side or are you seeing LNG.
Kind of shipper demand coming in as well.
Then in the <unk>.
Contact with both of those what will it take to get Ccs on this done.
Yes, maybe I'll touch on leap <unk>.
So we continue to see strong interest.
To get down to the LNG corridor, along the coast.
And it's broad based interest so I'll just leave it at that again.
It is a competitive environment that we're operating in right now so I don't want to get into too many details.
But strong interest and Thats really driven by the fundamentals we're seeing strong.
Indications of production growth I think if you look at the rig count.
The.
It is foreshadowing.
What's going to happen in that basin in the next six to 12 months.
And likewise, what we're hearing.
Around the LNG utilization and additional LNG growth so.
Strong fundamentals on both sides of the assets, so theres lots of interest from lots of different parties.
Our job is to just work through that and.
And commercially get through those details.
We're in a great spot we have pipes in the ground systems operating today.
Well interconnected.
All the.
LNG systems on the southern end of our asset footprint.
So we believe that we have.
The competitive advantage here, just a matter of working through commercially.
Okay maybe.
Maybe shifting gears looking at the quarter.
Gathering volumes were up a ton.
EBITDA was up slightly can you just kind of talk about some of the moving pieces here and how we should think about that going into 'twenty two is that a M.
NBC thing are we seeing competitive pressure on rates.
If there are any one off items, just really trying to balance the.
What kind of difference in growth rate.
Sure.
John I would say there are two things there.
To help reconcile that one it is.
Just to remind you that we were we are carrying some incremental costs that get allocated across.
The two business segments, so that'd be one.
The second item.
Or some of the incremental third parties that we brought on.
They have fairly short hauls on the gathering side of the Haynesville system.
And we're primarily focused on.
The leap corridor down down to the south so from a revenue recognition perspective.
Was probably heavier skewed to the us.
The leap pipeline side that was to the gathering side, so hopefully that helps.
Yes, no that makes sense, thanks for the tons that I appreciate it.
Okay.
The next question is from Michael Blum with Wells Fargo. Your line is open.
Thanks, Good morning, everyone, maybe just to stay on that topic of Haynesville gathering volumes.
Mentioned those were up quite a bit sequentially just wanted to get a sense of is that kind of a new level thats sustainable and from there you'll continue to grow or is there anything of that number that would be sort of one time.
Yes, good question Michael.
So.
A lot of what we saw in the fourth quarter.
<unk>.
We described as a pull forward of activity from 'twenty two so we'll see.
Three new customers that came on and I was just kind of talking to John .
John about there.
They came on earlier than we had planned.
And our treatment facility also was completed originally scheduled to be completed at the end of the year and we were able to pull that forward.
Into the beginning of the fourth quarter so.
There is a significant amount of pull forward. So when you look at how the volumes ramped we had quite a ramp in the fourth quarter related to what I just described.
So I would expect that that will be there.
That is there today and.
We'll be we'll be growing from there.
Great that helps a lot and then second question I just wanted to ask was about.
Basically the remaining 50% of the.
The capex the one two to $1 seven.
Not yet committed.
What amount of that do you think will ultimately go to energy transition versus your traditional pipeline and gathering segments.
Yeah. So we're really pleased I'll just start by saying, we're really pleased that we've got a line of sight on deploying half of that capital program.
<unk>.
Really in the last.
Six months to 12 months, so the commercial team has done amazing job.
Capitalizing on what the markets presented to us.
I do believe that we will have a portion of that and likely a significant portion of that going towards capital or energy transition programs.
It likely does come later and our plan just because it's still emerging.
And it's new.
I'd say.
Our.
A lot of focus right now on advancing the carbon capture project in Louisiana forward.
Sure.
In the land phase right now in a phase where we have a lot of discussions going on with the stable, Louisiana as we.
Work through the details too.
File a successful class six well permit.
Which I'm sure as everyone knows those are very detailed applications.
<unk> applications.
<unk>.
They will get closer inspection because of the nature of the permanent sequestration that everyone wants to have confidence in.
So we're working hard on that we're just doing it very diligently one step at a time with high confidence that we will keep the investor base apprised as we approach that application.
That will be a key milestone for us on that project.
Great. Thanks, so much.
Youre welcome.
The next question is from Alex Kania with Wolfe Research Your line is open.
Thanks, Good morning.
Yes.
Maybe maybe a couple of questions first is just on the.
The Haynesville phase one expansion.
Can you give us maybe a little bit more sense in terms of the timing about how that rolls in maybe in terms of I suppose 2023, and the outlook, there and maybe maybe a little bit more just on.
The other variable to keep in mind on 'twenty, three or other things that can maybe maybe upsides or risks keep in mind.
The second one is just this.
This is more broad, but just when you talked about kind of working on hydrogen with your partners. There you kind of see any evolution on.
Trying to integrate that with maybe a broader like hydrogen hub plan sort of beginning to kick off the process. There and then maybe just a sense in terms of timing on that thanks.
Sure.
While Alex.
Start with the Haynesville I'd point, you to slide 11 in the deck. We've tried to provide some color on in service states around some of the new investments there.
<unk>.
For phase one that's at Q4 'twenty three.
In service.
Hopefully that gives you a sense of timing there, but we've tried to I don't know if we've laid out a lot of the other projects on that on that page hopefully that's helpful.
Guys.
Through the details.
In terms of hydrogen.
And our partnership with Mitsubishi.
The way I would describe it there is a lot of interest in this right now.
Particularly for us.
We're very focused right now on.
Looking at Blue hydrogen opportunities, especially if they can pair up with Ccs.
It feels very it feels more economic a little easier to handle from a cost perspective.
The ultimate consumer.
Hi.
There is very interesting tax credits.
Or.
Being proposed for hydrogen.
The hydrogen hub.
Process it'll play out this year, we're very interested in that and involved in that.
And again I don't.
Don't really want to get into the details around that just because of the nature of the competitive aspect of those.
Of that program.
We're very interested in that and we're very focused on that and that is.
Front and center in our developments.
Matrix for for hydrogen.
Great. Thanks.
Youre welcome Alex.
We have no further questions at this time I'll turn the call over to Mr. Slater for any closing remarks.
Well, thank you very much everybody for joining us today.
We certainly appreciate your interest in TTM and I appreciate the questions that you had.
I'd like to the SaaS, everyone stays safe.
And have a great weekend.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
Sure.
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Yes.
Okay.
Okay.
Great.