Q1 2023 Summit Midstream Partners LP Earnings Call

Good day and thank you for standing by welcome to the first quarter 2023 Summit Midstream partners L. P earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advisor knew you had just raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today round of Barton Director of Investor Relations. Please go ahead.

Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release. Please visit our website at Www Dot summit midstream Dot com, where youll find it on the homepage events and presentations section of the quarterly results section with me today to discuss our first quarter of 2023 financial and operating results is Heath deneke.

<unk>, our president and Chief Executive Officer, and Chairman Bill Moore, Our Chief Financial Officer, along with other members of our senior management team for.

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.

So 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 2022 annual report on Form 10-K, which was filed with the SEC on March one 2023, as well as our other SEC filings for a listing of factors that could cause.

<unk> results to differ materially from expected results.

Please also note that on this call, we'll use terms EBITDA adjusted EBITDA distributable cash flow and free cash flow. These are non-GAAP financial measures and we have provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release.

With that I'll turn the call over to Keith.

Hey, Thanks, Thanks, Randall and good morning, everyone.

This morning, <unk> reported first quarter adjusted EBITDA of $60 4 million, which was in line with our internal expectations.

As expected we had a very active quarter operationally with over 60, new wells added to our systems over half of which were in the Rockies region.

Despite experiencing some timing slippage and longer than anticipated frac protect shut ins during the quarter. These new well additions resulted in 17% liquids volume growth quarter over quarter, and 14% gas volumes growth in the DJ basin relative to December of 2022.

Shifting to the full year picture customer activity levels remain healthy across most of our operating segments.

There are currently nine rigs running behind our systems and over 225 drilled but uncompleted wells that we expect will continue to drive significant volume and EBITDA growth throughout the remainder of the year.

Based on recent discussions with our customers in the Barnett and Piceance. We do expect that continued down downward pressure on near term gas prices will likely result in some delays in pullbacks planned activity in 2023.

This is the beginning of the year expectations. However, we believe those changes are largely accounted for in the lower end of our original segment guidance range in those particular regions.

In the Williston DJ and in the Utica shale basins, and we continue to see resiliency and our original customer plans for the year, which we believe keeps us on track overall to achieve strong sequential quarterly growth in 2023 and deliver on our adjusted EBITDA guidance range of $290 to $320 million for the year.

Our focus this year is on operational execution, given the significant number of wells that were connected behind our system. This year.

For the last five months, we have successfully integrated and continuing to optimize our recently acquired DJ basin assets.

Our capital program in the Williston and DJ basins continues to progress on time and on budget and Additionally in the Delaware Basin, we achieved an important milestone on <unk> during the quarter by receiving FERC authorization to construct a new lateral to the Red Hills processing facility in Eddy County, New Mexico.

At over 125 Bcf per day of processing capacity, the Red Hills plant is the largest.

And complex in the state of New Mexico.

We will be ramping up marketing activities. This summer to solicit interest from new and existing customers and hopefully provide firm transportation services from the Red Hills complex and other plants in the area.

Across the whole <unk> pipeline system to downstream delivery points in the Wockhardt, Texas area.

So in summary, we're off to a good start with our Q1 financial and operating results. We're excited about the cadence and level of customer activity will continue to see across our systems and we remain on track to achieve significant year over year EBITDA growth that we guided towards at the beginning of the year.

With that let me hand, the call over to bill to provide additional detail on our second financial results.

Thanks, Steve and good morning to everyone in the northeast, which is inclusive of our SMU system proportionate share of our how gathering joint venture and our Marcellus system with segment average one three bcf per day during the quarter inclusive of 598 million cubic feet a day of 80 eights OTC volumes.

And segment adjusted EBITDA totaled $17 9 million a decrease of $1 2 million from the fourth quarter of 2022, primarily due to a decline in volumes from Frac protect activities Heath mentioned earlier on the call.

We estimate those frac protect activities negatively impacted volumes by approximately 50 million cubic feet a day at OTC and 20 million cubic feet a day at SMU and gross margin not to ask MLP by approximately $1 million during the quarter.

We expect these impacts to moderate in the second quarter of 2023 as these new and existing wells are brought back online.

Five new wells were brought online behind our wholly owned SMU system and 12, New wells were connected behind our OTC joint venture during the quarter.

There are currently four rigs running behind our systems, including three rigs behind our wholly owned SMU system with more than 55 docks behind our systems.

Our customers are well hedged and while some are expecting significant growth behind it systems, we estimate our customers' overall basin activity to remain relatively flat to 2022 production levels.

The Rockies segment, which is inclusive of our DJ and Williston Basin systems generated adjusted EBITDA of $23 2 million, an increase of $9 4 million from the fourth quarter of 2022, due primarily to the DJ basin acquisitions made in December .

Liquids volume throughput averaged 74000 barrels per day during the quarter, a 17% increase relative to the fourth quarter of 2022, and natural gas volume throughput averaged 108 million cubic feet, a day, representing approximately 14% growth relative to volume throughput in December of 2022.

There were 36, new wells connected during the quarter. There are three rigs running in more than 150 docks behind the systems.

The Permian segment, which includes our 70% interest in the <unk> pipeline reported adjusted EBITDA of $5 1 million, an increase of <unk> 9 million relative to the fourth quarter of 2022, primarily due to contractual step ups in take or pay contracts at our <unk> joint venture.

The P&C segment recorded adjusted EBITDA of $14 1 million, a decrease of <unk> 7 million relative to the fourth quarter.

Volumes averaged 287 million cubic feet a day, a decrease of two 7% relative to the fourth quarter, primarily due to natural production declines partially offset by volume from eight wells that were turned in line in March.

There are nine more wells on that same pad site that had been drilled completed and expected to be turned in line. This month.

As Steve mentioned earlier, we are seeing some modest delay in development by our customers, but still expect to achieve our segment adjusted EBITDA guidance in the Piceance.

The Barnett segment reported adjusted EBITDA of $7 million, a decrease of <unk> 2 million relative to the fourth quarter, primarily due to natural production declines and frac protect activities impacting quarterly volumes by an estimated 6 million cubic feet a day and segment adjusted EBITDA by an estimated zero point $3 million.

There is still one rig running behind the system and one of our customers just decided to hold wells in DUC inventory until natural gas prices improve.

We now expect 15 wells to turn in line this year, which we expect to result in segment adjusted EBITDA to trend toward or slightly below the low low end of our segment adjusted EBITDA guidance range of $35 million to $40 million.

Quickly on the partnership as MLP recorded a first quarter net loss of $14 2 million and adjusted EBITDA of $60 4 million.

Capital expenditures totaled approximately $16 million for the quarter in line with expectations and included $4 million of maintenance Capex.

The majority of growth Capex during the quarter was in the Rockies and associated with pad connections and DJ basin integration projects.

With respect that smells piece balance sheet, we had net debt of approximately 134 billion a decrease of approximately $25 million relative to year end 2022, and total liquidity at the end of the first quarter totaled approximately 100 million which included.

<unk> 4 million of letters of credit.

And with that I'll turn the call back over to Heath for closing remarks, Alright, alright. Thanks Bill.

As I said earlier, we are pleased with our first quarter performance and while there have been a few gives and takes across the portfolio. We continue to expect to achieve our 2023, adjusted EBITDA guidance range of $290 million to $320 million for the year.

We look forward to continuing to provide operational updates throughout the year.

And before I open up the call for questions I wanted to remind everyone of the upcoming annual meeting of limited partners, which will be held virtually on May 10, 2023 at two P. M central time.

All unit holders should have received proxy materials associated with the meeting.

A number of items on the agenda that are important to the partnership and we encourage all unitholders to vote. Thank.

Thank you for your time and continued support and with that operator, I would like to open up the call for questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone.

And wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

We have a question from Gregg Brody from Bank of America. Your line is open.

Hey, good morning, guys.

Could you it looks like you've <unk>.

Just based on the quarter in Europe .

Your maintenance, you're maintaining the guidance that you need to ramp.

EBITDA for the year to hit those numbers.

Do you does it seem like you are trending towards the lower end of guidance Jeff.

Through sort of what are some of the risks to your two maintaining guidance today.

I'll kind of startup cop on that Pete and Bill.

Add some commentary as well I mean, as we said weeks. This quarter two is really in line with our with our expectations and the cadence of activity.

We expect that throughout the year. If you recall, we had within our guidance range I think the midpoint of well connects was north of 300 close to maybe $3 30, or so and 60 of those got completed in the first quarter, which was again kind of as we expected. So so definitely.

When we kind of have looked at the year, it's definitely kind of late first half early second half of the year is when the majority of those new wells and the volumes off of those wells will kind of come into play.

So I think at this point, while we definitely in the Piceance and the.

The Barnett, we kind of suggested that based on the recent discussions with customers and some of them.

Call back there that we'd probably expect to kind of come close to the lower end in those particular segments.

However, all of the.

The timing of all that.

The Utica in the Rockies segments.

The timing of those and cadence of well connects and level of well connects are still in line with the producer original plan. So.

We've risked those quite a bit in the mid so we kind of think that as long as everything kind of stays on track as it looks right now.

Still think kind of coming within the guidance range and at this point I'd, probably say we are just as likely to end up at the mid point, then we would be the low point.

Yes, Greg I'd, just add a couple more points right. We highlighted in the northeast right. We had about 70 million a day down for Frac protect while certainly that impacted quarterly results by about $1 $3 million. When you include the Barnett Frac protect.

Those are great signals right I mean that they're completing wells that are about to come online. So.

I think that further gives you a couple more data points on just the cadence then.

We wouldn't expect those to be shut in for Frac protect more than three or four months as they are completing wells on existing pad sites. So I think thats, a good leading indicator and then.

I think again as we see kind of construction timeline we had.

While capex was in line with our expectations of a decent capex this quarter.

I think thats, all indicating that we're getting pad connects connected.

<unk> out for a nice summer.

I appreciate the color there.

And just last one for you so you've talked in the past about strategic.

Opportunities potentially deleveraging the balance sheet and just improving the asset base.

What's your sense of the opportunity set today is that something that will.

We're likely to see this year or two or has has that changed.

I think our focus right now is really just on kind of just organic execution around our base business.

We're seeing a lot of new well connect a lot of new activity. It's we continue to look at opportunities, but we.

As you all know.

Completed the big DJ acquisitions, and we're seeing a lot of.

A lot of good stuff kind of happening in the DJ overall, but this is a year that were kind of focus on getting all of that the well connects and getting everything we can to move the market in rebuilding up liquidity under our credit facility that we that we utilize to help finance that DJ transaction. So I think certainly lots of.

<unk>, we always.

Look into things, but.

I don't think Theres anything right now that I would say is eminent or or.

It's something that we're frankly, not we're just not really all that focused on right now.

Got it. Thank you for your time guys.

Beth.

Okay.

Thank you and Thats all the questions. We have this concludes today's conference call. Thank you for participating and you may now disconnect.

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