Q2 2022 Summit Midstream Partners LP Earnings Call
Welcome to the second quarter of 2022 Summit Mitzrey and Partners LP Earnings Conference call. My name is Healdah and I will be your operator for today.
At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press zero one on your touch, don't phone.
I will now turn the call over to Randall Burton, Director of Finance, Treasurer and Investor Relations. Sir, you may begin.
Thanks operator and good morning everyone.
If you don't already have a copy of our earnings release, please visit our website at www.SummitMidstream.com where you'll find it on the homepage of Incent Presentation section or quarterly result section.
With me today to discuss our second quarter of 2022 financial and operating results, this heathed in a key, our president, chief executive officer, and chairman. Bill Malt, our chief financial officer, along with other members of our senior management team.
Before we start, I'd like to remind you that our discussion today may contain forward-looking statements. 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, and 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 2021 annual report on Form 10K, which was filed with the SEC on February 28, 2022, as well as our other SEC filings for listing up factors that could cause actual results to defer materially from expected results.
Please also note that on this call, we use the terms EBITDA, suggested EBITDA, and distributable cash flow. These are non- GAAP financial measures, and we have provided reconciliations to the most directly comparable GAAP measures and our most recent earnings release.
And with that, I'll turn the call over to Keith. Great. Thanks, Randall, and good morning, everyone. So, Summit reported second quarter adjusted EBITDA of $50.5 million, which exceeded our internal expectations despite over $3.6 million of unexpected weather, maintenance, and deal expenses incurred during the quarter.
North Dakota experienced a severe winter storm that started in late April and impacted the SMLP's operations for just over a month.
The North Dakota team did a great job getting things back online quickly and safely, despite those very challenging conditions.
I like Bill get more into the details, but we estimate the North Dakota storm, and as well as some of the frack-protect and related maintenance activities in the Northeast, were the primary drivers of the quarterly decline in liquids and natural gas volumes. One climate that has been created by civil water is controlled bylab? Here are some very beautiful soil Gran jungle with fertile Vasafe dogs. Now therefore, it's closed. you
During the quarter we successfully closed our Lane GMP asset cell for 75 million, which materially improved our leverage outlook and significantly increased our liquidity to 255 million as of June 30th.
We also had 14 wells that were connected during the second quarter, which beat our expectations as well. And as of now, we currently have eight rigs running across our systems, which generally have about 60 wells that are either driven on complete or are in the process of being drilled as we speak.
so
Look, as a result of our year today out performance, the performance from several new wells connected to the system in July , we believe that we are going to trend towards the higher end of our 2022 Adjusted E-Benedogadance Range of $205 to $220 million. Adjusted E-Benedogadance Range of $205 to $220 million.
As we look ahead into 2023, we're very encouraged by the increasing level of activity from our customers. Our latest producer development plans are now projecting over 200 well connections behind our systems.
We're obviously very excited and encouraged by this low level of activity as it, you know, generally represents about 80% growth in new well-connect activity relative to 2021 and 2022 average well-connects.
It's also a very significant step forward towards the historical level of activity that we've experienced over the few years prior to the pandemic, which is roughly 250 to 300 wells per year. The pandemic is a very significant step forward to the historical level of activity. It's a very significant step forward to the historical level of activity that we've experienced over the past few years. It's a very significant step forward
In addition, we've continued to benefit from consolidation in the upstream sector, most recently with a sense, latest bolt-on acquisition of approximately 27,000 net acres in the Utica, which is already dedicated to our SMU system. viruses.
I think it was the optimal buyer. Certainly given that the acreages can take you as to their existing acreage position, and they also owned a material working interest in the production. You'll notice that theidy works included in the production.
We expect this transaction will drive a significant amount of free cash flow for some going forward. As a cent develops the substantial inventory of identified drawing locations which are mostly behind pads that are already connected to the SMU system.
In the PIONS, we continue to make progress on the 200-well development program, which is expected to result in 15 to 20, while can that starting in the second quarter of 2023, and continue to wearably thereafter. And continue to wearably thereafter.
As a reminder, development in this region includes directional wells that have an initial IP rates of, you know, called a million to a million and a half in MMC for a day. I've called it a million to a million and a half in MMC for a day.
Based on these well characteristics in the cadence of development, we do think that this level of activity will result in flat to modest volume growth in our overall pion segment over the longer term.
Within the Barnette, we can then see strong performance from the 15 wells that have been connected and turned online to the system over the past nine months. With the latest four wells starting to flow in late July . With the latest four wells starting to flow in late July .
We have an active rig running behind our system and our customers have recently informed us the plans for more than 30 new wells in 2023.
So we believe that gas prices, the overall improvement and well performance, as well as the Barnett's proximity to the Gulf Coast, LNG markets really positions this segment for continued growth over the next several years.
While Wilson volumes were significantly impacted by the North Dakota storm this quarter, the volumes did normalize in June , and we continue to be encouraged by the well performance in Central Williams County as well.
We currently have four rigs running in the Wilson today, and our customers are planning for approximately 60 wells in 2023, which would include seven wells from a customer that will involve both crude and produced water and gathering services.
With nearly 50 wells expected in the second half of 2022 and the approximate 60 wells there on the plans thus far for 23, we definitely expect to see meaningful volume growth behind the systems over the next of reporters.
Well, obviously it's still early to make a call on official guidance for 2023, but if you assume that the customers execute on the development plans that are in front of us today, we anticipate that summit will experience several digital EBITDA growth in 2023.
This level of growth would significantly improve SMLP's balance sheet and further position of business for success going forward.
As we have discussed, growth in the base business is only one aspect of our overall story. We are pursuing and continue to pursue leverage in value-accreted bolt-on acquisitions and divestitures and we're also making great progress on commercializing and potentially expanding the EE pipeline in the Permian. We also expect that that would drive tremendous growth or summit, not only as we look into next year and the contractual step-ups, but certainly in the out years as we bring new contracts to the table.
of 562 million cubic feet of 8.8 OTC volumes.
and segment adjusted EBITDA totaled 18.7 million, which decreased 1.5 million from the first quarter.
This was primarily due to a 14.7% decrease in volume on our Holy Own systems and 6.1% decrease in volume at our Ohio Gathering Joint Venture.
Approximately half of the volume decline sequentially on our Holy Own system was due to approximately 45 million a day of maintenance related downtime, upstream of our TPL 7 connection, and approximately 9 million a day of volume temporarily shut in behind our Holy Own SMU system while a customer was fracturing a nearby 4-watt pad.
We estimate that this activity negatively impacted EBITDA for our wholly owned systems by approximately $0.7 million during the quarter.
And subsequent to quarter end, the four new well pad was brought online in July and had initial production of over 100 million a day.
approximately 17% or 6 million a day of the volume decline behind our OGC joint venture. The volume decline behind our OGC joint venture.
was also due to well temporarily shut in for frack protect.
which was partially offset by six new lower volume condensate wells that came online during the quarter.
We estimate that the temporary shut-ins impacted segment adjusted EBITOD by approximately 200,000 that to summit during the quarter. Vapan
Subsequent to quarter end, nine new wells were connected behind our OGC joint venture that are expected to produce over 180 million a day on an 8-8 basis.
We believe these activities behind our wholly owned system and OGC joint venture will serve as a volume catalyst for the Northeast segment beginning in the third quarter of 2022.
As Seat mentioned, we look forward to better understanding a sense development plans in the Northeast pro-former for their acquisition of dedicated acreage behind our wholly owned SMU system. We will have a widespread commitment to havingo a range of loving and tutaj. We would expect a part of our school's broken-linked housing in the western California area of public health system, as part of the public health as part of the public health system, as part of the public health system, as part of the system.
The Rocky segment, which is inclusive of our DJ and Williston Basin systems, generated adjusted EBITDA of $13.9 million.
which decreased 1.9 million from the first quarter of 22.
Natural gas volumes averaged 29 million cubic feet per day, and liquids volumes averaged 54,000 barrels per day.
Natural gas volumes were flat quarter over quarter and there were four new wells connected behind those systems during the quarter.
Crude oil volumes decreased approximately 17% and that was primarily due to the weather that Heath mentioned alongside no new wells being brought on during the quarter.
We estimate that the winter storm reduced liquids volumes by approximately 11,000 barrels a day, which accounted for nearly 100% of this quantile volume decline, and impacted gross margin by approximately 1.7 million during the quarter.
Volumes normalize in June and there are currently four rigs running with over 35 dots behind this system.
and approximately 30 wells expect to come online in the third quarter at we expect to serve as a volume catalyst here in the second half of the year.
The Permian Basin segment, which is inclusive of our wholly-owned lane GNP system that was sold on June 30th, and our 70% interest in the doubly pipeline reported at Justin DeBittov 4.8 million, which represented a 0.7 million increased relative to the first quarter. The Permian Basin segment, is the first quarter. The Permian Basin segment, is the first quarter. The Permian Basin segment,
This was primarily due to approximately 70% of all in growth behind our W joint venture. We have all in growth behind our W joint venture.
Vans were flat behind our GMP system and double E-volumes averaged 314 million a day and 8-8 spaces for the quarter. Vans were flat behind our GMP system and double E-volumes averaged 314 million a day corner.
There are approximately 100 rags running in in Adian Lee County, New Mexico, of which 14 are existing customers behind our W.E. system.
And we expect volumes behind our EE joint venture to continue to increase alongside this increasing production and upstream activity in the region.
The Piont segment reported adjusted EBITDA of $15.4 million and was generally in line with the first quarter. So this is just a quick overview of the
Volumes average 312 million cubic feet a day, flat relative to the first quarter, and we still expect our customer to move its active drilling rig in the basin to drill up 17 permitted wells and expect those wells to come online here in the fourth quarter.
The Barnett segment reported adjusted EBITDA of $7.2 million, a decrease of $2 million relative to the first quarter.
This was primarily due to $3 million increase in operating expenses, resulting from commercial settlements that reduced operating expenses in the prior periods.ues.
This was partially offset by a one and a half percent increase in volume throughput.
As he mentioned, we continue to see great results from the wells connected to the system over the past nine months.
There were four new wells connected to the system at the end of April that achieved peak volumes of approximately 27 million a day.
There were also four new wells that came online in late July , and we expect an additional four wells in the fourth quarter that are currently being drilled.
This level of activity in 2022 with over 30 wells expected in 2023.
should serve as a significant ball and catalyst behind the system going forward.
Turning quickly to the partnership, SMLP reported a second quarter net loss of 91.8 million. This was primarily due to a $84.5 million impairment associated with the sale of our Lane GMP system.
We generated adjusted EBITDA of $50.5 million and incurred capital expenditures of $6.1 million during the quarter, which included $1.9 million of maintenance capex.
In addition to the sale of the Lane GMP system for approximately 75 million, we also sold an additional 2.6 million of late inventory.
Free cash flow generation during the quarter, along with the access sale proceeds, enabled us to pay down the ABL by approximately $82 million. NEIGH?
As of quarter end, we had $151 million outstanding under our $400 million ABL credit facility and approximately $12 million of unrestricted cash on hand.
Our veral bull barring capacity at the end of the quarter totals approximately 243 million, which included 6 million of letters of credit. the
And with that, I'll turn the call back over to Heath for closing remarks.
Thank you, Bill. We're very pleased with the progress that we're making really on all aspects of our corporate strategy.
And we believe that the combination of the expected base business volume growth that we talked about, the commercialization and potentially expansion of W.E. as well as the leverage and value of a creative bolt-on acquisitions and investors will drive a tremendous amount of value for really all of our stakeholders going forward....
As always, we'll continue to provide updates as our customer plans and strategic initiatives materialize. I would like to thank you for your time and continued support. With that operator, I'd like to open the call up for questions.
Thank you.
We will now begin the question and answer session. If you have a question, please press 01 on your touchtone phone. If you wish to be removed from the queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question, please press 01 on your touchtone phone. We're standing by for your questions.
We have no questions at this moment. We'd like to thank you ladies and gentlemen for attending today's conference. Thank you for your participation. You may now disconnect.
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Welcome to the second quarter 2022 Summit Mitsrion Partners LP Erning's conference call. My name is Hilda and I will be your operator for today.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
During the question and answer session, if you have a question, please press 01 on your Touchstone phone.
I will now turn the call over to Randolph Burton, Director of Finance, Treasure, and Investor Relations. Sir, you may begin.
Thanks operator and good morning everyone.
If you don't already have a copy of our earnings release, please visit our website at www.summitmidstream.com where you'll find it on the homepage, events and presentation section, or quarterly results section.
With me today to discuss our second quarter of 2022 financial and operating results, is Heath Deneke, our president, Chief Executive Officer and Chairman. Chief Executive Officer and Chairman.
Bill Molt, our Chief Financial Officer, along with other members of our Senior Management Team.
Before we start, I'd like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses, capital expenditures.
They may also include statements concerning anticipated cash flow, liquidity, business strategy, and 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 2021 Annual Report on Form 10-K , which was filed with the SEC on February 28, 2022, as well as our other SEC filings for a listing of factors that could cause actual results to defer materially from expected results.
Please also note that on this call, we use the terms EBITDA, adjusted EBITDA, and distributed will cashflow. These are non- GAAP financial measures and we have provided reconciliation to the most directly comparable GAAP measures to our most recent earnings release.
And with that, I'll turn the call over to you. All right, great. Thanks, Randall, and good morning, everyone.
So some reported second quarter adjusted EBITDA of 50.5 million, which exceeded our internal expectations despite over 3.6 million of unexpected weather, maintenance and deal expenses incurred during the quarter.
North Dakota experienced a severe winter storm that started in late April and impacted the SMLP's operations for just over a month.
The North Dakota team did a great job getting things back online quickly and safely, despite those very challenging conditions.
I like Bill get more into the details, but we estimate the North Dakota storm, and as well as some of the frack protected maintenance activities in the Northeast, were the primary drivers of the quarterly decline in liquids and natural gas volumes. and liquids and natural gas volumes.
During the quarter, we successfully closed our Lane GNP asset sale for $75 million, which materially improved our leverage outlook and significantly increased our liquidity to $255 million as of June 30.
We also had 14 wells that were connected during the second quarter, which beat our expectations as well. And as of now, we currently have eight rigs running across our systems, which generally have about 60 wells that are either drove but uncompletes or are in the process of being drove as we speak. Of course, the
So, look, as a result of our year-to-day outperformance, performance from several new wells connected to the system in July , we believe that we are going to trend towards the higher end of our 2022 adjusted EBITDA guidance range of $205 to $220 million.
As we look ahead into 2023, we're very encouraged by the increasing level of activity from our customers. Our latest producer development plans are now projecting over 200 wealth connections behind our systems.
We're obviously very excited and encouraged by this low level of activity as it, you know, generally represents about 80% growth in new well-connected activity relative to 2021 and 2022 average well-connected activity.
It's also a very significant step forward towards the historical level of activity that we've experienced over the few years prior to the pandemic, which is roughly 250 to 300 miles per year.
In addition, we've continued to benefit from consolidation in the upstream sector, most recently with Ascent's latest bolt-on acquisition of approximately 27,000 net acres in the Utica, which is already dedicated to our SMU system.
Ascent was the optimal buyer, certainly given that the acreage is contiguous to their existing acreage position, and they also owned a material working interest in the production.
We expect this transaction will drive a significant amount of free cash flow for summit going forward. As a cent develops the substantial inventory of identified drilling locations, which are mostly behind paths that are already connected to the SMU system.
In the PIONS, we continue to make progress on the 200-wild development program, which is expected to result in 15 to 20, while can that starting in the second quarter of 2023, and continue to wearably thereafter. And continue to wearably thereafter.
As a reminder, development in this region includes directional wells that have initial IP rates of, call it a million, a million and a half in MMC per day.
Based on these well characteristics in the cadence of development, we do think that this level of activity will result in flat, the modest volume growth in our overall p-ounce segment over the longer term.
Within the Barnett, we continue to see strong performance from the 15 wells that have been connected and turned online to the system over the past nine months, with the latest four wells starting to flow in late July .
We have an active rig running behind our system, and our customers have recently informed us of plans for more than 30 new wells in 2023.
So we believe that gas prices, the overall improvement in well performance, as well as the Barnett's proximity to the Gulf Coast LNG markets really positions this segment for continued growth over the next several years.
While wells and volumes were significantly impacted by the North Dakota storm this quarter, the volumes did normalize in June and we continue to be encouraged by the well performance in Central Williams County as well.
We currently have four rigs running in the Williston today, and our customers are planning for approximately 60 wells in 2023, which would include seven wells from a customer that will involve both crude and produced water gathering services.
With nearly 50 wells expected in the second half of 2022 and the approximate 60 wells there on the plans thus far for 23, we definitely expect to see meaningful volume growth behind the systems over the next of reporters.
Well, obviously it's still early to make a call on official guidance for 2023, but if you assume that the customers execute on the development plans are in front of us today, we anticipate that some of will experience double digit EBITDA growth in 2023. wa
This level of growth would significantly improve SMLP's balance sheet and further position of business for success going forward.
As we have discussed, growth in the base business is only one aspect of our overall story. We are pursuing and continue to pursue leverage in value accreted bolt-on acquisitions and divestitures and we're also making great progress on commercializing and potentially expanding the EE pipeline in the Permian. And we also expect that that would drive a tremendous growth or summit, not only as we kind of look into next year and the contractual step-ups, but certainly in the out years as we bring new contracts to the table.
So with that, I'll hand the call over to Bill Malp to provide some additional details on the financial results.
Thanks Heath, and good morning everyone. I'll get started in the Northeast, which as a reminder includes our SMU system, proportionate share of our Ohio Gathering Joint Venture, and our Marcellus system.
The segment averaged 1,194 million cubic feet per day during the quarter. That's inclusive of 562 million cubic feet of 8.8 OTC volumes.
and segment of the justice of the data totaled 18.7 million, which decreased 1.5 million from the first quarter. The justice of the data totaled 18.7 million from the first quarter.
This was primarily due to a 14.7% decrease in volume on our Holy Own systems, and 6.1% decrease in volume at our Ohio Gathering Joint Venture.
Approximately half of the volume declines sequentially on our Holy Own system was due to approximately 45 million a day of maintenance-related downtime, upstream of our TPL-7 connection, and approximately 9 million a day of volume temporarily shut in behind our Holy Own SMU system while a customer was fracturing a nearby 4-watt pad.
We estimate that this activity negatively impacted EBITDA for our wholly owned systems by approximately $0.7 million during the quarter.
and subsequent to quarter end, the four new well pad was brought online in July and had an initial production of over a hundred million today.
Approximately 17% or 6 million a day of the volume decline behind our OGC joint venture.
was also due to well temporarily shut in for frack protect.
which was partially offset by six new lower volume and we couldn't see it well as it came online during the quarter.
We estimate that the temporary shut-ins impacted segment adjusted EBITDA by approximately 200,000 at the summit during the quarter.
Subscone to quarter-end, nine new wells were connected behind our OGC joint venture. They are expected to produce over 180 million a day on an 80th basis. Subscone to quarter-end, nine new wells were connected behind our 80th basis. Subscone to quarter-end, nine new wells were connected
We believe these activities behind our wholly-owned system and OGC joint venture will serve as a volume catalyst for the Northeast segment beginning in the third quarter of 2022.
As he mentioned, we look forward to better understanding a sense development plans in the Northeast pro-former for their acquisition of dedicated acreage behind our whole-ion decimation system. of dedicated acreage behind our whole-ion decimation system.
The Rocky segment, which is inclusive of our DJ and Williston Basin systems, generated adjusted EBITDA of $13.9 million.
which decreased 1.9 million from the first quarter of 22.
Natural gas volumes averaged 29 million cubic feet per day and liquids volumes averaged 54,000 barrels per day.
Natural gas volumes were flat quarter over quarter and there were four new wells connected behind those systems during the quarter.
Crude oil volumes decreased approximately 17%. And that was primarily due to the weather that Heath mentioned alongside no new wells being brought on during the quarter.
We estimate that the winter storm reduced liquids volumes by approximately 11,000 barrels a day, which accounted for nearly 100% of this quantual volume decline, and impacted gross margin by approximately 1.7 million during the quarter.
Volumes normalize in June and there are currently four rigs running with over 35 dots behind the system.
and approximately 30 wells expect to come online in the third quarter at we expect to serve as a volume catalyst here in the second half of the year.
The Permian Basin segment, which is inclusive of our wholly-owned Lane G&P system that was sold on June 30th, and our 70% interest in the EE pipeline, reported a just $4.8 million, which represented a $0.7 million increase relative to the first quarter.
This was primarily due to approximately 70% volume growth behind our EE joint venture.
Volumes were flat behind our GMP system and double E-volumes averaged 314 million a day and 8-8 spaces for the quarter. PSC
There are approximately 100 rigs running in Eddy and Lee County, New Mexico, of which 14 are existing customers behind our EE system.
And we expect volumes behind our EE joint venture to continue to increase alongside this increasing production and upstream activity in the region.
The P.O.M. segment reported at Justin EBITDAF 15.4 million and was generally in line with the first quarter.
Volumes average 312 million cubic feet a day, flat relative to the first quarter, and we still expect our customer to move its active drilling rig in the basin to drill up 17 permitted wells and expect those wells to come online here in the fourth quarter.
The Barnett segment reported the adjusted EBITDA of 7.2 million, a decrease of 2 million relative to the first quarter.
This is primarily due to $3 million increase in operating expenses, resulting from commercial settlements that reduced operating expenses in the prior periods.
This was partially offset by a 1.5% increase in volume throughput.
As Heath mentioned, we continue to see great results from the wells connected to the system over the past nine months.
There were four new wells connected to the system at the end of April that achieved peak volumes of approximately 27 million a day.
There were also four new wells that came online in late July , and we expect an additional four wells in the fourth quarter that are currently being drilled.
This level of activity in 2022 with over 30 wells expected in 2023.
should serve as a significant volume catalyst behind the system going forward.
Turning quickly to the partnership, SMLP reported a second quarter net loss of 91.8 million. This was primarily due to a $84.5 million impairment associated with the sale of our Lane GMP system.
We generated adjusted EBITDA of $50.5 million and incurred capital expenditures of $6.1 million during the quarter, which included $1.9 million of maintenance capex.
In addition to the sale of the Lane GMP system for approximately 75 million, we also sold an additional 2.6 million of late inventory. We also sold an additional 2.6 million of late inventory.
Free cash flow generation during the quarter, along with the asset sale proceeds, enabled us to pay down the ABL by approximately $82 million.
As of quarter end, we had $151 million outstanding under our $400 million ABL credit facility and approximately $12 million of unrestricted cash on hand.
Our verifiable barring capacity at the end of the quarter totals approximately 243 million, which included 6 million of letters of credit....
And with that, I'll turn the call back over to Heath for closing remarks.
Thank you, Bill. We're very pleased with the progress that we're making really on all aspects of our corporate strategy.
And we believe that the combination of the expected base business volume growth that we talked about, the commercialization and potentially expansion of EE, as well as the leverage and value of creative bolt-on acquisitions and divestitures will drive a tremendous amount of value for really all of our stakeholders going forward.
As always, we'll continue to provide updates as our customer plans and strategic initiatives materialize. I would like to thank you for your time and continue to support. I'm with that operator. I'd like to open the call up for questions.
Thank you.
We will now begin the question and answer session. If you have a question, please press 01 on your touchtone phone. If you wish to be removed from the queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question, please press 01 on your touchtone phone. We're standing by for your questions.
have no questions at this moment. We'd like to thank you ladies and gentlemen for attending today's conference. Thank you for your participation. You may now disconnect.