Q1 2022 DT Midstream Inc Earnings Call
And then I will close with some remarks on our future opportunities.
So with that we had a strong first quarter performance that puts us firmly on track for our plan for the year and we are highly confident in our ability to achieve our 2022 guidance.
Our commercial team was very busy advancing our investment plan.
On our Appalachia gathering system, we reached agreements with two existing customers that will result in an attractive incremental expansion with approximately 200 million a day of added system capacity, a significant term extension and expansion of dedicated acreage.
On our Nexus pipeline, we executed a five year contract for 100 million a day of capacity with an investment grade shipper at attractive rates.
We are also advancing our ESG focused initiatives, which are a priority for us as.
As Jeff will cover in more detail, we successfully locked in the interest rates and extended the term on a portion of our variable rate debt.
So it's been a very busy and productive quarter moving the company forward.
Turning to the fundamentals the environment for natural gas continues to remain strong.
The geopolitical situation with the Russia, Ukraine Moore has highlighted the importance of energy security, both domestically and abroad. The rule for U S. Natural gas in the form of LNG will be critical in supporting Europe , and ending Europe's dependency on Russian energy Supply's U S. LNG can also displays.
Coal globally as a fuel source for electric generation, which supports worldwide decarbonization efforts in a timely and cost efficient way.
<unk> assets are very well positioned to enable U S. LNG export growth both out of Appalachia and the Haynesville. We currently have approximately two bcf a day of access to LNG export markets, which are shippers have under long term contracts, our lead pipeline fluids gas to three export terminals on the Gulf.
And our Stonewall pipeline provides a critical pathway for Appalachian gas to the Cove point terminal on the east coast and to the pipelines that serve the Gulf Coast LNG corridor.
The strong gas price environment is also benefiting many of our customers and we expect it to continue to improve their cash flows and credit metrics, making these customers stronger which will provide additional flexibility to grow production over time.
We are seeing a response to the strong fundamentals in both of the basins, where we operate.
In the Haynesville production is continuing at record levels and strong rig activity points to robust future growth projections are for seven to 8 billion cubic feet a day of growth in both Haynesville supply and Louisiana Gulf Coast LNG demand between now and 2030.
This is translating to very strong demand for pipeline capacity from the Haynesville to the Gulf Coast.
The price environment is also sending a strong signal to drill in Appalachia with.
With takeaway capacity constraints in the basin. There is a high demand for any existing capacity or easily expanded capacity to get gas further downstream towards markets.
I will touch a little bit more on the specific opportunities created by the fundamental environment later on the call.
Before I pass it over to Jeff I wanted to give an update on our previously announced expansion projects, which we'll begin entering service starting the second quarter of this year.
As further detailed on slide 14 of the presentation.
Our team is highly focused on executing these projects and all major projects remain on track, we have order critical long lead equipment and continue to proactively manage supply chain situation.
I'll now pass it over to Jeff.
To walk you through our quarterly financials and outlook.
Thanks, David and good morning, everyone.
Our first quarter results put us firmly on track for our full year 2022 plan.
In the first quarter, we delivered overall adjusted EBITDA of $191 million.
This strong first quarter performance combined with balance of year growth from our new projects and planned growth in our existing businesses.
It makes us highly confident we will achieve our full year 2022, adjusted EBIT guidance.
We are also well positioned to achieve our early outlook for 2023.
Regarding our quarterly segment level performance.
We had largely consistent results for both our pipeline and gathering segments compared to the fourth quarter of 2021.
Pipeline segment results include higher contribution from our pipeline joint venture.
Offset by lower short term contracted volumes on Stonewall.
Our gathering segment results for the first quarter included the impact of planned maintenance on our Haynesville system.
Operationally, our total gathering volumes across both the Haynesville and Appalachia averaged two 9 billion cubic feet per day.
And included the continuing benefit of the new customer volumes on our Haynesville system.
Which were pulled forward into 2021.
Now turning to our balance sheet, we are always evaluating ways to improve on an already strong position.
Which is why we recently took action with a bond issuance and the investment grade market.
Which effectively converted 60% of our seven year term loan to a 10 year senior note.
The execution of this leverage neutral transaction fixes the interest rate on a large portion of our floating debt.
And extended our weighted average debt maturity.
Eight years.
I'll now turn it back over to David for more details on our growth opportunity.
And recent advancements in our ESG agenda.
Thanks, Jeff.
Less than a year since our spin off from DTE, we have committed over 50% of our one two to $1 7 billion five year investment plan to organic projects at attractive returns in the Haynesville with strong fundamental environment continues to provide <unk> and our pursuit of a phase II.
Haynesville system expansion, which remains a top priority for our commercial team.
We believe that new projects are needed to facilitate the delivery of haynesville gas to the LNG export terminals.
And expansions of existing systems, such as leap is quicker and.
And a lower risk solution than a greenfield build.
In Appalachia, we continue to have discussions on the next was open season, and we will keep pursuing favorable re contracting opportunities at improved rates.
And our emerging <unk> business platform, we continue our disciplined work to advance our Ccs projects in the Louisiana area towards an EPA classics permit application filing.
We will continue to prioritize our ESG leadership by offering our customers low carbon services.
For example, we have joined with Cheniere to monitor emissions at our Haynesville operations.
<unk> the ability to carbon tax future LNG cargoes.
We're also putting the finishing touches on our inaugural sustainability report, which we plan to publish later this month.
So in summary, I feel really good about the start to the year and I am confident that we are on track to deliver on our full year 'twenty two guidance and achieve our 2023 early outlook.
The very strong fundamental surrounding our assets has me very optimistic about the durability of our portfolio, which supports our future growth opportunities and the company's performance over the long term.
We can now open up the line for questions.
As a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question today is from Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
With the with the new Nexus contract. There I was just wondering if you could provide a bit more any details on the rates there or how the environment looks.
Youre signing matching the rates will look strong given the scarcity of takeaway coming out of Appalachia, but any color you could provide there would be helpful. Thanks.
Absolutely Jeremy.
You are correct we are seeing.
More interests in any available capacity that's in the network thats on contracted today.
Given the.
Strong price signals for Appalachia producers to drill there really just they don't want to drill and flood the base and they want to drill and go to a market.
So that's been really positive.
The contract that we announced is.
Strong.
<unk> grade driller in Appalachia.
That information will become public Jeremy for you guys to look at on the Nexus website.
Process, but yes, we're seeing that.
Strong rates I'll, just say it that way.
Rate escalation as we have been talking over the last 12 months that continues so we're really happy about that we look to do more of that.
In conjunction with working through the details of.
The next is open season, we're really looking at how can we expand the export capacity out of the basin.
Incrementally within easy low risk low cost.
Expansion opportunity.
Yes.
Got it thanks for that.
And then turning I guess.
Haynesville just wondering.
It seems to be competition down there for new pipe.
But just curious if you, but the leap system given its footprint given expansion capabilities, just wondering where could where could the system grow to over five years from now you think given the.
Profile for our Haynesville production growth as it stands now.
Yes, that's a great question, Jeremy and certainly as I said in our opening remarks, one of our top priorities with the commercial team.
If you really just step back.
You can see that there is a really strong.
Demand like that that seven to eight Bcf is real over the next seven to eight years.
So when we look at the assets our ability to expand we can expand quickly.
Incrementally with compression so it's low risk and.
Quick to bring it online for our customers. So we can ramp with the production.
But when we get beyond that two Bcf a day with compression. We can go up to three Bcf a day as we begin to loot the system. So again doing it all inside our right of way inside our footprint.
And it can be done incrementally.
As the demand is there and the producers are ready to make those commitments.
So it's.
We're really excited about it and.
Stay tuned as we can sort of continue to progress that beyond what we announced.
On the year end call, we're going to expand we're in flight now expanding the system for 300 million, a day and and again look to keep adding increments.
As we progress here with customers.
Got it that's helpful and just one last one if I could as it relates to carbon capture development within Louisiana any other thoughts you can provide I guess on timeline when this could become more real and just really classics wells, Louisiana seeking primacy there thoughts on timeline or anything else on this topic that you could provide more.
Color on would be helpful sure.
So were the.
The way I would describe it Jeremy we're just we're following our very disciplined development.
Land.
The next major milestone for us will be that that classics application.
I think as we've talked before Louisiana is trying to get privacy.
Our plan is we will file regardless of whether Louisiana has primacy or not.
Just because these applications take some time to.
Go through the regulatory process anywhere from two to three years, so getting this files.
This year is a high priority for us.
But we want to file it with high quality information, it's a very rigorous process. So again, that's part of that disciplined development that the team is adhering to where were just methodically.
Doing all the homework and the due diligence in the right way so that when we do file that application, it's a high quality application the.
With the regulators.
What's going to be end up before we file it and.
It can progress through the process in a smooth fashion.
So that's how we're thinking about it.
It's somewhat new a lot of other companies are sort of in the same position we're in.
And it's also.
Somewhat of a.
As you are acquiring the rights that you need to do this.
Again that disciplined approach, we just want to be very cognizant of getting all the pieces together before we put applications out there in the public domain. So that we have no.
Issues, along along the way.
Got it that's helpful I'll leave it there thanks.
No problem. Thanks, Jeremy.
The next question is from Michael Blum with Wells Fargo. Your line is open.
Thanks, Hey, good morning, everyone.
Do you want to go back to a comment.
Some comments you made about.
Kim and cost issues as it relates to the growth projects are just want to make sure I understand are you, saying that kind of in spite of those issues and inflation that we're seeing the cost of the projects really hasnt changed materially.
So when we did the projects we factored in what I'll call the supply chain realities that we're seeing in the market and really what im saying here, Michael just confirming that those projects remain on track on budget.
We knew there was going to be some pressure so that was factored into the capital and the commercial structure. When we made the investment decision.
And we're just being really mindful of that because of all the pressure that we all see in supply chain to keep our eyes on that.
So that we don't have any project changes along the way here.
Got it.
Makes sense. Thank you and then.
Also just wanted to ask about the gathering segment.
Year over year, the volumes are up pretty substantially I think like 18%, but your EBITDA is up only modestly year over year. So im wonder if you can just walk us through that dynamic and also whether we'll eventually see those higher volumes translate to cash flows.
Okay.
Hey, Michael It's Jeff Joe One thing when you think about year over year and Youre, referring to first quarter first quarter is remember there's public company costs.
Planned through that's why in the deck.
Sort of guiding people going to the fourth quarter over the first quarter. So so that's the dynamic youre seeing but of course when you look at our 2022 guidance and then leaving our 2023 guidance you can see the planned growth both the new projects and within the business that that growth.
As planned through both of those.
If you want to add onto that yes, yes, that's really the the answer there is that you are comparing a Q1 inside DTE, where we didn't have the standalone incremental public company costs. So that's really the delta there that youre looking at.
And then maybe I'm just going to pull it back.
Pull back to the higher level is that.
On the year end call when we announced the Haynesville system expansion that I'll just talk on the gathering side just to put in perspective, we announced a 25% increase in our gathering system in that expansion that was 500 million a day. So just to put it into perspective are we.
As our Haynesville gathering system growing with production I think the answer is clear that it is we're going to grow that system by about 25% without announced expansion.
Perfect. Thank you so much.
Youre welcome.
The next question is from John Mackay with Goldman Sachs. Your line is open.
Hey, everyone. Good morning, Thanks for the time, maybe just wanted to follow up on kind of some of the haynesville stuff and I'm sorry, If you guys said listen I missed it but could you just talk a little bit more about.
Just getting through the maintenance and kind of maybe where we are sitting right now I know last quarter. You also talked about some.
Some of the shorter term contracts that are pulled into fourth quarter, just really trying to think about what the second quarter plus trajectory could look like there. Thanks.
Yeah, John it's David.
Yes, so the way I think about it.
High level quarter over quarter, we are relatively flat volumes on the Haynesville system. So we have the haynesville system running at a very high utilization right now.
Yes, I think we noted that we have some planned maintenance that showed up.
In March in the first quarter.
That.
Was contemplated in our guidance.
What we had in our plan.
We have significant expansions that are underway and those are detailed out I believe on slide 14 in the deck.
That sort of walks the growth that will occur.
Second quarter third quarter fourth quarter, this year, and we ramp that up.
And so we've got a significant expansion that we're in flight on right now.
We'll be building out on and.
And again, it's fully contracted.
With an anchor shipper and just to remind everybody that.
We had a really strong fourth quarter last year, we pulled forward into.
Into the fourth quarter.
A number of new customers that came on the system.
We didn't expect were going to come on until kind of at the end of the year. So thats why youll see that real strong growth Q3 to Q4.
And then basically they all came on in Q4, so we're running relatively flat as we worked through the expansions now in 2022.
And have the system running at a very high utilization right now.
Okay. Thanks for that makes sense, maybe just.
Just to confirm there so.
The Haynesville gathering expansion is more of a third quarter in service second quarters can be relatively flatter on the volume side is that fair.
Yes, I'm just glancing at that slide that I, just pointed to district remind myself on the quarters here, but most of the the Haynesville gathering shows up in Q3 of 2022.
Now, we're getting it we're going to be.
To be seeing other expansions that we've previously announced showing up in Q2, but.
But not on the Haynesville system.
Okay. That's fair thanks for that maybe just one more one we've seen M&A on the G&P side kind of more bolt on G&P M&A pick up a little bit just wondering if you guys have looked at any of that what your appetite might be and how youre thinking about that overall.
Sure.
Yes. So we're aware of all the assets that are in the market that have been in the market and are currently in the market.
Our approach right now on that is again, just taking a very disciplined look at things and they have to.
Yes.
They would have to strategically fit and they absolutely have to have value creation.
For us so that's kind of our progress on that.
We're flushed with Greenfield opportunities right now.
Very focused on executing all of the announced projects and pursuing new Greenfield projects.
And I think.
Those are very.
Accretive and very.
Good investments for the.
The investors with strong returns when youre doing it on top of your existing assets. So.
We're always trying to be good stewards of the capital that we have here and making sure that we're getting it to.
The place that provides the highest shareholder value at the end of the day. So that's how we think about M&A right now in the current environment that we're in and.
So we're looking and we're aware of it and open to it but it has to deliver at the end of the day the value that that we expect.
That's great. Thanks for the time.
The next question is from Robert Moskow with Mizuho Securities. Your line is open.
Hey, guys. Thanks for taking my question just wondering if there is any more juice to squeeze on some of these northeast gathering expansion just given the regional pipeline constraints and can you remind us how <unk> is situated so that he can get incremental volume out of the basin and could you do something similar on Susquehanna. Thanks.
Yeah. Thanks for the question Rob.
So I mean, we're really pleased with what we announced on Ags and again just to put it in the context between what we announced.
Today, and what we announced I believe late last year, we're growing that system, 35% over the next year or two.
So that is really strong growth in Appalachia, and I think you asked exactly the correct question, Rob, whereas that gas going how can those producers drill that up and get it out just to remind everybody ags connects directly to Nexus.
So its nexus as a free way out of the basin for Ajs is directly connected to Nexus.
And Ags is also directly connected to our Stonewall pipeline, which.
Again.
We announced previously a new firm contract on Stonewall it's another.
Avenue out of Appalachia.
That has.
Open capacity capacity available so.
Between those two.
Freeways.
Producers on Ags are able to step up their production. So we're extremely happy with that I mean that that is a very a great outcome for us.
And very pleased to work with our key customers there.
I think as you know one of our major customers on Stonewall as Antero and.
Antero has has a long term firm commitment to Cove point.
And Stonewall as the primary avenue for their gas to get to Cove point.
And.
So we're really excited about what's happening on Ags right now.
Okay.
Got it.
Helpful.
I guess turning to financing just wondering if you have any plans to term out the remaining $400 million on your term b loan and should we take the refinancing to mean that $2 7 billion of long term debt is kind of what you view the comfortable indebtedness level longer term.
Yes, Hi, Rob This is Jeff yeah. Good good good question what we.
Did when we did that transaction again, we wanted to make a significant move in converting our floating to fixed so we've executed on that but we also wanted to maintain the strategic optionality with the term loan b. So I'll provide you because you know its got that prepay feature and as and as David talked about we've got over six.
60% of our growth capital committed and so again as the commercial team continues to.
Firm up our growth capital then we will reassess what do we want to do with the rest of that term loan b. So sort of provide you passed in sort of a view of what were thinking there from a capital structure perspective, yes, we're very comfortable with the overall debt levels that we that we have because as we've talked about our growth cap.
<unk>.
Along with the opportunity we have that fit inside of our free cash flow. So we're able to self fund all of our our growth. Therefore, we don't need external capital. That's why we're very comfortable with the overall size of our capital structure.
Got it thanks, everyone have a great day, yes, you're too Rob.
Again that is star one if you'd like to ask a question. Our next question is from James Carreker with US capital Advisors. Your line is open.
Alright, thanks for the question.
Just wondering.
But the takeaway constraints out of Appalachia.
We've seen a number of Permian pipes announce some compression expansion does that.
Something that could.
You can do for Nexus to kind of increase the takeaways.
Yes James.
Dave This is David yet so we had an open season late last year.
To look at opportunities on Nexus.
And yes, that's certainly one opportunity that we're actively pursuing.
Weather compression expansions viable theres a couple of other.
<unk>.
Techniques I'll say it that way that we're looking at on Nexus to enable incremental capacity at very.
Modest incremental capital and.
Like I said earlier low risk investments that are.
On a relative basis much easier to do but that's a that's a priority for US next is a brand new asset very well connected to the downstream markets.
And.
With this pricing a lot of these producers are looking for.
How can they grow their production Appalachia as a world class resource long long term drill a bulk resource a lot of producers are sitting a lot of undeveloped acreage.
We have this wonderful price opportunity in front of them right now they just need to have confidence they can take those volumes to durable long term markets. So it's an absolute priority for us to create more freeway capacity out of the basin.
We're working both the Nexus side and like I alluded to earlier, the Stonewall side, so the pathway north into the upper Midwest markets, and the pathway, south and east towards the east coast or towards the Gulf Coast.
To get some of that Appalachia gas down into the LNG corridor. So working both ends looking for.
<unk>.
<unk>, we can do with these assets to eke out more incremental capacity.
Any sense for the magnitude.
Of how much capacity can be added I guess compression or these other techniques.
Either <unk> or <unk> plus total.
Yeah.
Just given that given the point of the conversations right now on an excess I'm going to I'm just.
I'm not in a position to share that publicly right now in excess but I will remind all share publicly the southern piece because I think we've talked about it in the past Stonewall is a 36 inch pipe.
That is has no compression on it.
So theres open runway on Stonewall.
And there is easy expansion opportunities on Stonewall and we can take that comfortably up to television chef a day.
Probably a little beyond.
Under the right operating circumstances. So again I think this is ware.
We're looking at how do we do rational.
Low risk low cost expansions to help these producers.
Monetize some of their acreage and obviously for Stonewall we have to work in conjunction with our other pipeline rather than in.
And the industry to get get beyond the southern and the Stonewall and further into the load centers.
Thank you and then if I could fit one more in.
Any sense on how much capex is associated with this most recent.
Announcement for the expansion of Ags.
And then any thoughts on what the capex could be for any Ccs projects.
Down the road.
Yeah.
So I'll save the Ags expansion is.
It is a very strong return expansion.
<unk>.
And again, there's a lot of activity going on on Ags right now.
And again.
Bear with me here, we will provide that information for you I just can't do it just yet there are other opportunities we're pursuing on ags debt.
I don't want that information out in the public domain at this point.
So that's that's the Ags.
Situation.
And our Ccs.
Again, I'm going to refer back to the disciplined development.
Approach that we always like to take and again I think until we are prepared to file that EPA class six application again, we wanted to keep some of the details out of the public domain as we navigate through the development cycle here, we're at a very sensitive point in the cycle and.
Again as soon as we're comfortable sharing that with you.
We will.
I understand thank you.
We have no further questions at this time I'll turn it over to David Slater for any closing remarks.
Great. Thank you everybody for joining us today and we truly appreciate your interest.
In DCM and I personally look forward to seeing many of you at the EIC Investor Conference later this month.
In person and in life and lots of really exciting things happening in the sector and for our company right now many of which we've touched on today.
Very excited about the future opportunities in front of the company and.
With that stay safe and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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