Q3 2023 Summit Midstream Partners LP Earnings Call
Good day, and thank you for standby and welcome to the Summit Midstream partners third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
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I would now like to turn the conference over to your host.
Randall Burton. Please go ahead.
Yeah.
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 you'll find it on the homepage events and presentations section of our quarterly results section with me today to discuss our third quarter of 2023 financial and operating results is Heath.
Our president and Chief Executive Officer, and Chairman Bill Moore, our Chief Financial Officer, along with other members of our senior management team.
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 these expect.
Stations 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 actual results to differ materially from expected results. Please also note that on this call. We use the 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.
It's directly comparable GAAP measures in our most recent earnings release and with that I'll turn the call over to Heath.
Alright, Thanks, Randall and good morning, everyone.
So today I'll start by discussing our third quarter financial and operating results and then I'll briefly touch on the strategic alternatives review that we launched in October.
So as we previously mentioned, we did have a slower than expected start in the first half of the year that was primarily driven by a timing shift in well connects that were originally slated to come online during the second quarter.
I would now regained their momentum in the third quarter with about 74, New wells turned in line behind our systems, which of course drove significant volume and adjusted EBITDA growth of roughly 20% quarter over quarter.
We're pleased to report today that our third quarter adjusted EBITDA.
Equaled about $72 8 million, which was above the midpoint of our original guidance range and certainly demonstrates that we're back on track to achieve $300 million of LTM EBITDA adjusted EBITDA during the first half of next year.
Drilling down a bit more on our segment results in the northeast we connected 22, new wells during the quarter 14 behind our wholly owned SMU system and eight behind our OTC joint venture and this also resulted in quarter over quarter segment, adjusted EBITDA growth of over 35%.
Since the end of the third quarter, we have connected an additional 11 wells, which we expect will continue to drive volume and EBITDA growth behind our SMU system throughout the fourth quarter and into next year.
Despite the timing delays that we had in the first half of the year in this segment our activity levels are now.
Have fully caught up with 76 wells connected year to date.
And we're also pleased to announce as.
As we did this morning that we had kicked off a multi phased project a centralized compression project that will provide low pressure service on parts of our SMU system at.
The first phase of the project will be in service during the first quarter of 2024 and will result in an incremental compression fee on about 20 million a day of existing production.
We anticipate installing additional phases of the centralized compression project over the next couple of years, which again will add additional revenues behind that new system and we believe will have a positive impact on overall production levels.
The combined project will take advantage of latent compression units from our mountaineer system in West Virginia.
<unk> mitigates our out of pocket capital cost on the project.
Moving to the Rockies segment, we connected 37 wells behind the system during the quarter, including six in the DJ and 31 in the Williston, which drove about 20%.
Volume growth on the liquid system, and nearly 50% adjusted EBITDA growth.
Well year to date well connects in the Rockies to 114 wells.
We are still expecting an additional 50 wells or so to be connected during the fourth quarter.
We continue to focus on integration of the DJ Basin acquisitions that we made last year and expect to have the majority of the capital projects complete by the end of the year and these projects will meaningfully enhance our operating margins in 2024 and beyond as we integrate the systems.
A few other key highlights in the Rockies, we recently executed a 15 year contract extension with a key customer in the Williston Basin, which includes over 30000, largely undeveloped acreage behind our existing system and Southern Williams County.
We expect this customer to begin a one rig development program in mid 2024.
And Additionally, we had two of our major customers in the Williston segment.
Emerged during the third quarter and while this combination might create some are dampened near term development activity I relative to status quo, we're really very excited about the pro forma combination.
U S acreage position here and we will.
Certainly create and enable our anchor customer here to develop more third three mile laterals versus two mile laterals that they've been able to do historically. So overall, we think it's going to be a very positive development for the segment.
Quickly in the Barnett, our anchor customer connected six wells during the quarter, which are performing very well.
A bit early to talk too much about 2024, but we will tell you that that customer has also communicated plans to complete 15 to 20 wells in the first half of 2024, which would lead to some really nice volume growth behind the Barnett system next year.
Additionally, as we previously announced one of our customers have elected to shut in production about 29, a day of production.
Really just anticipating much higher gas prices in the future than what we've experienced.
Thus far in the year and we're hopeful that that production will also come back online as soon as we see prices continue to strengthen.
So look with a 224 wells that were connected through the third quarter and at least 75, new wells that are expected to turn online by year end, we continue to expect fourth quarter adjusted EBITDA to range from 75% to $85 million.
Looking further ahead, we're very pleased with the cadence of customer activity. As we said we have about 220 wells that are slated to turn in line between now and the first half of next year.
We believe this level of activity demonstrates it.
Momentum in the business will continue next year. It really gets keeps us on track to achieve again that $300 million LTM adjusted EBITDA at sometime during the first half of next year.
So before handing the call over to Bill I also wanted to touch on the strategic alternatives review, we announced in early October.
We're pleased with the level of interest that we've received for multiple parties.
That involves various transactions ranging from specific asset sales to sell the whole partnership.
Yes, Gordon I felt it was prudent to engage.
External advisors to help evaluate these alternatives, obviously with a goal of maximizing the value of our units for our unit holders.
These alternatives include but are not limited to continuation.
Our continued execution of the business plan that we're under now.
The sale of certain assets.
Refinancing parts or the entirety of the capital structure sell of the partnership by merger cash or really any combination of these and other alternatives are definitely in play.
There is no deadline or a definitive timetable set for completing the strategic alternatives review, but we are committed to provide further updates on the process as appropriate.
I'd like to remind everyone. While the board conducts its review of the company remains focused on this operational performance and execution of its existing business plan.
So with that let me turn the call over to be able to give more details on segment results and expectations.
Thanks, Keith and good morning, everyone in the northeast, which is inclusive of our SMU system proportionate share of our Ohio gathering joint venture and our Marcellus system. The segment averaged 1600 22 million cubic feet per day during the quarter inclusive of 870 million cubic feet a day.
They have eight eights OTC volumes.
Segment, adjusted EBITDA totaled $27 8 million, an increase of $7 6 million, representing 37% growth relative to the second quarter.
This was primarily due to an increase in volumes.
We connected two new wells during the quarter, including 14, new wells behind our wholly owned SMU system, and eight new wells behind our OTC joint venture.
Subsequent to quarter end, we've connect an additional 11 wells behind the system and there is currently two rigs running with approximately 14 docs.
The Rockies segment, which is inclusive of our DJ and Williston Basin systems generated adjusted EBITDA of $25 million, an increase of $8 2 million from the second quarter of 2023, primarily due to increased volumes higher freshwater sales and an increase in commodity prices positively impacts.
Our pop contracts.
And the D. J natural gas volume throughput averaged 117 million cubic feet per day, representing 18% increase relative to the second quarter, which was primarily a result of 13 wireless connected during the first quarter a year starting to reach peak production.
We expect the 38 wells connected during the second quarter to reach peak production during the fourth quarter, which we would expect to continue.
Result in volume growth through.
Through the end of the year and into 2024.
In the Williston.
Liquids volume throughput averaged 83000 barrels per day during the quarter.
2nd% to 17% increase relative to the second quarter as a result of 31, new wells coming online during the quarter.
We continue to expect over 50, new wells to be connected behind the systems in the fourth quarter, mostly in the D. J, which will lead to continued volume growth in the first half of 2024.
There are currently three rigs running in more than 115 docs behind the systems.
The Permian segment, which includes our 70% interest in the <unk> pipeline reported adjusted EBITDA of $5 8 million, an increase of half a million relative to the second quarter.
And just as a reminder, the contracts on <unk> will ramp again in November.
Which will bring total contracted volume to 985 million cubic feet per day.
Volume throughput on <unk> averaged 327 million cubic feet per day, representing an increase of 34% relative to the second quarter.
We remain confident in the fundamental long term outlook for the <unk> pipeline with a 102 rigs running in Eddy and Lea counties, New Mexico.
Oral recent plant expansions announced in the region and the region and the expected trajectory of our anchor customers production in the basin.
The <unk> segment reported adjusted EBITDA of $15 3 million, an increase of <unk> 9 million relative to the second quarter.
Volumes averaged 313 million cubic feet per day, an increase of five 4% relative to the second quarter, primarily due to volume from 12 wells that were turned in line during the quarter.
Subsequent to quarter end eight additional wells being connected to harden our system and we expect another 13 to be connected by the end of the year all of which are currently docs.
The Barnett segment reported adjusted EBITDA of $6 1 million, a decrease of $1 2 million relative to the second quarter, primarily due to $1 8 million of other revenue recognized in the second quarter.
Our customer continues to keep approximately 20 million a day of production shut in due to low natural gas prices and we estimate that those shut ins negatively impacted adjusted EBITDA by approximately $1 3 million.
Our anchor customer connected fixed wireless in September, which will result in volume growth in the fourth quarter.
In addition, this anchor customers communicated initial plans for 15 to 20 well connections in the first half of 2024.
There is currently one rig running in 'twenty, one docks behind the system today.
Quickly on the partnership <unk> reported third quarter net income of $3 9 million and adjusted EBITDA of $72 8 million.
Capital expenditures of approximately $18 million for the quarter in line with expectations and included approximately $3 million of maintenance Capex.
The majority of the Capex spent during the quarter was in the Rockies and associated with pad connection costs and DJ Basin integration projects and then the northeast related TV centralized compression project Keith mentioned earlier.
With respect to ask Mlp's balance sheet, we had net debt of approximately $1 32 billion total liquidity at the end of the third quarter totaled approximately $118 million, which included approximately $4 million of letters of credit.
As a result of the growth in adjusted EBITDA total leverage has decreased approximately <unk> three turns quarter over quarter and we continue to expect to see significant delevering over the next several quarters as we trend towards 300 million of LTM adjusted EBITDA in the first half of 2024.
And with that I'll turn the call back over to Heath for closing remarks.
Thank you Bill so just to recap I mean, we remain very excited about the activity levels behind the system and the resulting volume and EBITDA growth.
Third quarter represents a very strong quarter for the business and we expect to continue to build on that momentum in the fourth quarter and as we head into 2024 and.
And we look forward to closing the year strong and certainly we'll provide further updates regarding our strategic alternatives review.
Continue to develop.
With that thanks for the time and continued support and operator lets open the call up for questions.
Thank you.
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Our first question comes from the line of Gregg Brody with Bank of America. Your line is now open.
Hey, guys. Thanks for the.
Comprehensive update.
I just have a couple.
So as we think about this too.
The strategic review I. Appreciate there is a limit to what you can say, but.
Just sort of two questions there.
Monthly about cancer.
Without giving too much away is there is there any limitation.
Asset sales, maybe to think about with respect to taxes.
That's something that may limit.
Selling the company in pieces right.
We consider and then the second question is just.
Before you announced the strategic review by assets seem to be the strategy.
That youre focused on.
I guess I'd like to say, what's what's changed there.
Doesn't seem to be part of the priority.
<unk>.
Most of my questions.
Thanks, Greg.
Look as far as limit of asset sales.
Given.
What particular tax situation that might that might bring about I mean, it's certainly something we'll kind of take into consideration.
I think the assets that we're evaluating and the amount that we're evaluating we don't think its going to be prohibitive from us being able to.
Monetize if we get the right value.
As far as what's changed I really don't think anything.
He has changed I think obviously, we are opportunistic in the DJ and we bought those assets for.
Around five times and as you can see recently announced I think you can see that some other assets in that area have traded it probably higher multiples.
Matt So I think we just found a really good opportunity to add a lot of good synergies with our existing operations.
That led us to kind of closing on that acquisition last year I think as we look ahead.
This year the strategic alternatives review is what really prompted this was just got some inbound.
Activity.
As well as just not not being overly pleased with where our stock price had been trading.
I don't think it's a shift in strategy I think we're being responsive to some folks that recognize there are some really high quality assets in the portfolio.
That frankly, the market value is probably in excess of our enterprise trading multiple now that's what's prompting us taken hard look at that and likewise for indications on maybe buying the whole partnership that's something that we're just evaluating relative to status quo in some of the asset sell case. So it's.
It's about really all I can say on it but again I think it's.
It's not that we still think that theres a lot of good opportunities to tuck in assets in and around the footprint and I think thats part of what we like about this position here over time, hopefully we'll be able to.
Find some additional assets that might make sense over time to check in.
Yeah, and Greg the only thing I'd add on the acquisition front.
I kind of mentioned in my prepared remarks.
We're seeing kind of quarter one.
That kind of run rate to 300 million, which resulted in 0.3 turns total leverage delevering, just rolling one quarter off in bringing in a good solid.
$73 million quarter this quarter.
So as you think about the business, we're really going to accelerate delevering here over the next several quarters and I think that will also.
Better position us not only for broader refinancing.
<unk> next year as well as looking at some of these additional highly synergistic bolt ons, but at the moment, we have been focused integrating that DJ basin acquisition.
Having that done by the end of the year here, so that we can really.
Push kind of some of the commercial synergies we mentioned when we acquired those assets.
And I'll throw one more in here just related to the business.
So clearly as you pointed out the ramp is happening.
Just a little delayed this year.
What's the sense you're getting.
Of your customer appetites for next year.
You.
Related to some of us on the call considering where the commodity prices constitute now in particular gas prices.
It should come back quite a bit.
I mean, obviously oil where there seems to be more upside risk out there and downsize.
Yes, I think look I mean, as we said I mean, we have a good line of sight on the rest of the year in the first half of next year and I think we've got.
A little over 220 wells that are scheduled to be turned online during that time period.
I think we continue to see at least what we have in front of us.
<unk>.
Much a continuation of kind of the cadence that we've experienced to date in 2023.
Second half of the year.
I agree with you that yes, I think the good thing on the gas side as we said in the Barnett.
Our anchor customer there.
Committed to attendance or 15% to 20 wells first half of next year.
That's in spite of kind of where the gas prices are now and they've shown the resiliency to kind of drill in.
Like commodity prices and same thing up in the Utica wells or COF.
Still economic.
I think where youre not seeing overall production growth necessarily out of the Utica, but just given our footprint in the amount of inventory relative to other systems, we're just getting a little bit more activity than we have been in the past. So so far I would say we continue to expect there to be some strong momentum as we kind of cover into 2024.
And Greg just breaking down the Q 'twenty right. If we've got 75 wells that we expect here.
In the fourth quarter, and then you kind of blend that remaining 145, youre talking about kind of that 70 to 75 wells a quarter.
Throughout the first half and certainly early to kind of make a call on second half and we will certainly do that during our normal kind of guidance cadence when we release our 10-K in February.
I think that just gives you a sense that we've been kind of trending in that.
75 ish 70 to 75 wells a quarter type of range.
Alright, thanks for the time guys.
All the detail.
Okay.
Thank you that concludes today's Q&A session. Thank you for participating on today's call. This concludes today's conference you may now disconnect.
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