Q2 2022 DT Midstream Inc Earnings Call

Thanks, David and good morning, everyone.

In the second quarter, we delivered overall adjusted EBITDA of $205 million.

Which was driven by strong performance in both our pipeline and gathering segments.

Pipeline segment results were driven by the in service of our Stonewall expansion.

Higher revenue on leap and the impact of a favorable one time settlement with a supplier recognized in the second quarter.

Gathering segment results were driven by higher revenues on Blue Union.

Operationally total gathering volumes across both the Haynesville.

And northeast averaged two 8 billion cubic feet a day in the second quarter.

Which was consistent with our plan for the year.

With our gathering system is running at high utilization the planned expansion projects in the second half of the year will support future volume growth.

Our strong second quarter performance places US ahead of plan and we are reaffirming our 2022 adjusted EBIT guidance of <unk>.

$770 million to $810 million.

We are also highly confident in our 2023 early outlook for adjusted EBITDA.

I'll now pass it back over to David for more details on our ESG program and closing remarks.

Thanks, Jeff.

Tim we are committed to operating in an ethical environmentally sensitive and socially responsible manner. During the second quarter. We published our first sustainability report, which highlights where we currently stand on our ESG journey and some of the initiatives that we're executing on and I encourage you to review it.

And we welcome any of your feedback.

In closing it's been a great first half of the year, we are well on track to deliver our full year 2022 guidance and achieve our 2023 early outlook.

I'm also very excited about the continued commercial progress and momentum on projects that will deliver strong growth into 2024 or beyond we can now open up the line for questions.

Okay.

Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

We will take our first question from Jeremy Tonet with Jpmorgan. Your line is open.

Yeah.

Hi, This is Steve jumping on for Jeremy here.

I guess, just starting out if we could looking at your first half performance and versus the guide.

If we kind of just double that out obviously youre running towards the top end of guide.

But there was a onetime settlement into Q. So just wondering if you guys can run us through the puts and takes on the on the back half how you see volume.

Exiting and just puts and takes on the guide in general.

Good morning, Steve and thanks for the question this is David.

Yes, so, let's just hit the onetime settlement.

Just for color Thats about $6 million.

It relates to expenses, we've taken in previous.

<unk> periods, and we reached a positive settlement here in the second quarter that was in the original plan for the year.

So that's sort of baked into the guide for the year Steve.

In terms of what we expect in the second half of the year, we have a series of projects that we previously announced laid out in the in the deck.

We will come into service and that will drive the backend growth the.

The guess.

Comfortably in that guidance band and I think as I said earlier, we're running ahead of plan right now.

So theres definitely a lift in the second half of the year and as we sit here today, we're running.

Ahead of the plan.

Got it okay. Thank you and then I guess just pivoting over to <unk>.

You are talking about moving towards the classics well later this year.

I just wanted to get your thoughts on.

The new Bill.

As laid out with Transferability and then also the improvements and I know you guys have said before that that doesn't matter much to you.

The economics on that doesn't matter much to you.

But just wanted to get your thoughts on that and then also class five wells and if that has any input into the classics would that have to come before or would you guys look to do that after that even in the thought process just anything around tcs.

Sure.

Yes. So this is obviously fluid.

Based on what's happening in Washington.

So I'll start by saying, it's very constructive.

And we're optimistic based on what we're hearing.

As we all know I think the Devil's in the details here, but it's definitely pointed in an optimistic and constructive direction as we said earlier our project.

Was viable under the existing.

45, Q structure, so any improvements to that structure will be obviously supportive to our plan.

In terms of the details around the class five class six I think we're going to steer clear of those details publicly right now.

As everyone appreciates Theres a lot of projects and there is a lot of movement.

Around this and whether Louisiana, ultimately pools and primacy and win so I'm just going to leave that be for the time being but what I will say is that we're pushing to have filing occur before the end of the year and we're doing a lot of work right now to prepare that.

That filing and make it a high quality filings so that it can move through the regulatory process with no drama and that's what we're focused on right now.

Got it perfect. Thanks, guys I'll leave it there.

Thanks, Steve.

And we will take our next question from John Mackay with Goldman Sachs. Your line is open.

Hey, guys. Good morning, Thanks for the time, let's start on the Haynesville. So.

<unk>.

Flattish to a little down again this quarter I know, we're waiting on that Blue Union gathering expansion could you just share a little more detail on kind of where that sits now that we're a month into third quarter, and maybe even kind of where volumes that right now if you're able to share that.

Hey, good morning, John and thanks for the question. So I guess, what I'd just make a few observations here John so.

EBITDA was up.

In second quarter. So the margins were larger even though the volume was flattish.

And I think just at a high level. This is just the timing is as we're building incremental facilities on the producer is incrementally drilling obviously, those two things seem to be time together.

To optimize that for both parties.

So we're highly confident that this.

These facilities are coming in service in the second half of the year and.

To your point and I don't want to get into too. Many details here on the call, but we are seeing incremental volume showing up across the system and recall, we also have expansions in Appalachia.

That are occurring in the second half so we're seeing all those click.

Clicking in as we would expect and as is baked into our guidance. So again, just feeling really good that as we sit here today. We are ahead of our internal plan.

Very confident that we're going to deliver.

On our guidance.

As we progressed through the second half of the year.

Okay. Thanks, So maybe taking one on <unk>.

On Capex. So you guys reiterated the full year guide, but youre running pretty far behind.

What that looks like so I guess could you share a little bit more of just how youre thinking about that second half step up is the full year guidance still what we should think about or.

I don't know if anything slipping into 2023 potentially.

Yes, John I don't see anything sliding into 2023, but we're going to have a heavy spend in the second half of this year and that's just timing timing around.

As you engineer out these projects and actually start sending the money out the door just the way it's timed.

Income heavier in the second half of the year, but I will make one comment.

Just overall.

We obviously want to spend less capital and deliver the same EBITDA. So.

We have a pretty rigorous process here to look at capital efficiency opportunities and I alluded to that.

In my opening remarks that phase two.

We're going to see some synergies with phase one because of how quickly we can bring us into service.

So again, we will be working diligently to.

Peel off a little bit of that capital and will evolve the EBITDA completely intact, but more to come on that as we get deeper into execution.

Okay, maybe just one clarification just to add on if you don't mind can you just is.

Is any of the Blue Union expansion online, yet or I guess, when youre, saying second half so that so I mean, maybe a couple of months from now.

Yeah for Blue Union.

That is going to play out.

Prospective from the point in time that we're sitting at right now so that's all still in front of us.

We have seen some of the.

Northern gathering come on.

In the third quarter as we sit here today. So it all comes on over the next basically five months between now and the end of the year.

Okay. That's great. Thanks for all the color really appreciate it yes, no problem great questions.

As a reminder, it is star one if you would like to ask a question.

And we will take our next question from Michael Blum with Wells Fargo. Your line is open.

Thanks, Good morning, everyone.

I wanted to talk a little about the leap expansion that you just announced what what's the duration of that of that contract.

Whereas the average contract duration now overall for leap.

Yes, good morning, Michael.

So yes, let me just talk a little bit about our phase II. So number one we're really excited about it I think it's a good example.

Our ability to bring timely capacity the market.

And bring it in scalable tranches.

In terms of the counterparty details on all of the contract details as I alluded to in the opening remarks. We're also actively engaged in phase III discussions. So at this time, we're not going to share specifics about counterparties or term, but what.

I would say is these are all 100% take or pay contracts, they're all long term.

We are not putting the capital to work without long term commitments.

My recollection of the average duration across leaf is approximately nine years for the entire system that includes existing contracts and all of our new contracts.

So the system is contracted for long term under a 100% take or pay contract structures.

Great No that helps a lot I appreciate that.

Other second question kind of a related question.

Just wanted to if you could talk through the competitive dynamics in the Haynesville right now for incremental takeaway. It certainly seems like there are multiple projects that had been announced in the lab.

Last few months. So just wanted to get your lay of the land in and maybe if you could discuss maybe how returns.

These projects are are trending given given how competitive it is right now.

Sure.

So maybe I'll just step back for a minute and talk about the fundamentals and then I'll get into the competitive dynamics and what we see playing out there so.

There is really strong fundamentals both on the supply side and on the demand side around leap and also around other similarly situated projects.

So we definitely are seeing.

Reaction by the producer community to increase drilling.

And we've all heard all of the public announcements that the LNG terminals are making as they sign up incremental demand.

<unk>.

These two fundamental drivers want to connect to each other as the Crow flies there 150 to 200 miles apart.

And that's really what we're pursuing with these leap expansions I'd.

In terms of the competitive dynamics.

Time to expansion is a critical element.

And again, we believe we have a significant advantage because we're in the ground.

I'd say when we originally announced the leap expansion, we announced it as a carbon neutral wellhead to water pathway. It's the first project of its kind.

In North America, and I think in the world.

For that matter.

We kind of we have a unique service offering that we're putting into the market I think thats a competitive differentiator.

We're very scalable so as you've seen over the last two expansions we have been just picking up.

A couple of a couple of customers at a time with what I'll call manageable incremental tranches of capacity that fit nicely into their drilling program. So that's another element that I think.

Described as a competitive landscape.

And we have a lot of delivery point flexibility in our system, we deliver it to multiple takeaway points at Yale It's not just one.

And we have multiple other delivery points embedded in the system kind of inside the basin. So we have delivery point flexibility and we have a lot of optionality that's already designed into the existing system that's flowing today.

So.

All of those matter, obviously price matters as well and again, we're able to do these expansions.

Just consistently at the rates that we've had on the system from inception. So so again I think it's all of that.

It comes together in the competitive landscape some of the other projects that are greenfield they need to hit critical mass before they can.

And.

We clearly have an advantage over those projects because we don't need to do that we can do it in smaller tranche just like we just announced today. So it's a very.

Exciting market strong fundamentals driving expansions I think there is.

We expect more.

Opportunity in the future here.

Our goal is to.

Make sure that we pick up our share of the market and in.

And can serve our customers and give them a real strong value proposition with the service they buy from us.

Great. Thank you.

And we will take our next question from Robert Moskow with Mizuho Securities. Your line is open.

Hi, good morning, everyone.

So maybe just staying in the Haynesville just wondering in the context of our phase III expansion would you be looking at.

Maybe I think you have about 300 Mcf, that's expandable with compression and then everything most of whats beyond that is looping could you try for phase III expansion to do some of that together or do you look at it in kind of two distinct buckets, and it's a bar a little bit higher to extend with looping.

Yeah, Hey, good morning, Rob Great question.

The way we are executing on our current projects, we really have extended our runway now to the three Bcf a day.

Based on <unk> based.

Based on what we have publicly announced and what we feel.

We're still pursuing.

We're we're definitely looking at optimizing the construction to be Commvault look things slash compression. So the way I would describe it Robert is that old milestone is sort of in the rearview mirror the new milestone that we have before US now is three Bcf a day.

Got it that's really helpful and maybe on switch.

Switching to Nexus.

Said that you've picked up an additional contract just wondering how much capacity you have spare capacity you have left for maybe long term contracting.

Yes, so we're really happy with how <unk> is playing out. So we just continue to do I think what we've been doing the last three or four quarters, which is take some of the shorter term capacity that was contracted.

Standing out the term <unk>.

And expanding the rate.

I'm really happy about what we announced this morning.

This is another Midwest utility.

Long term contract like I said at attractive rates real interesting element here is that this utility also contracted for Washington, 10 storage capacity and vector capacity to pair up with their nexus capacity. So it's just a great example of this despite not only serves.

Our wholesale producers, but it's directly serving a end use market need.

Just on its locational advantages and it's in our connectivity to storage and to other regional pipelines. So.

Yes. This is just another.

Kind of another step on our journey.

<unk> continues to work on additional long term contracts as.

As we as we see some of those shorter term contracts coming in rolling and there is a strong demand.

For those long term contracts because the base is so tight right now.

Got it alright, I appreciate the time everyone.

Youre welcome.

As a reminder, this star one if you would like to ask a question.

And we will take our next question from Alex Kania with Wolfe Research. Your line is open.

Hey, Thanks, Good morning I was.

Just wondering if you had any initial thoughts potentially on this these permitting reform proposals.

Obviously, a lot of what Youre doing is been Interstate so I'm wondering if there's any opens up any other options for you.

And then maybe on a related note to the extent that all of this moves forward and.

The only pipeline gets done does that also kind of type of any implications for you maybe kind of in the upside and downside.

Sure, Yes, good question and good morning.

We'll start with the.

The first part of your question again, I would say that we're very optimistic and encouraged by what we're hearing out of Washington.

It's not directly attached to the inflation reductions act. So it's running a separate in parallel I believe pathway. So we'll be watching that really closely to see if the political support and alignment is there and how quickly it can move through the process and quite frankly.

To see the language, there's been a lot of discussion both at a high level. What it is but I think we need to see the details and then we need to see.

Action for lack of a better word out of Washington, where its moving forward. So again very positive and optimistic signals.

I know the industry has been working together on this for months.

So again very encouraged by what we're seeing.

If that plays out as we expect.

I think I think you're right I think it does.

Put a few more options back on the table in terms of potential to expand some some pipelines and I think it's most applicable to Appalachia.

Where there are expansion opportunities and there is a strong desire and producer community to grow so I think it opens up an interesting dynamic in Appalachia.

I hope that.

This gets done so that mountain valley can progress.

Patient needs that asset to progress.

The exact impact of that project going forward I think.

I think it's different today than it was four years ago went out would have been in service.

I'm not sure how much takeaway capacity at the other end of that pipe exists today, given all the other projects that Transco has done. So I think we're going to I think the basin, we'll digest that as a truly one for one or is it a different ratio I think it's a different ratio a lower ratio, but more to come on that.

But I think it's encouraging positive for the entire basin and we're very happy about what's transpiring in Washington and various support.

Great. Thanks very much.

You're welcome.

As a reminder, its star one if you would like to ask a question.

Okay.

And there are no further questions at this time I would now like to turn the call back over to Mr. David Slater for any additional or closing remarks.

Well. Thank you very much for joining us today, we certainly appreciate your interest and all your questions.

Please stay safe enjoy your summer and have a great day.

Ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.

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