Q4 2023 DT Midstream Inc Earnings Call
Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the DT Midstream fourth quarter 2023 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Good morning, My name is Andre and I will be your conference operator today at this time I would like to welcome everyone to the D. T Midstream fourth quarter 2023 earnings conference call.
Today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the start key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Todd Lorman, Director of Investor Relations. Good morning and welcome everyone. Before we get started, I would like to remind you to read the Safe Harbor Statement on page two of the presentation, including the reference to forward-looking statements. The presentation also includes references to non-GAAP financial measures; please refer to the Reconciliations to GAAP contained in the appendix. Joining me this morning are David Slater, President and CEO, and Jeff Jewell, Executive Vice President and CFO. I'll now turn it over to David to start the call.
If you would like to withdraw your question Press Star one again.
At this time I would like to turn the conference over to Todd Lohrmann director of investors relations.
Good morning, and welcome everyone.
Before we get started I would like to remind you to read the safe Harbor statement on page two of the presentation.
Including the reference to forward looking statements.
<unk> also includes references to non-GAAP financial measures.
Please refer to the reconciliations to GAAP contained in the appendix.
Joining me. This morning are David Slater, President and CEO, and Jeff <unk> Executive Vice President and CFO.
I'll now turn it over to David to start the call.
Todd Lorman: Thanks, Todd, and good morning, everyone, and thank you for joining us. During today's call, I'll discuss our 2023 accomplishments and provide an update on our organic growth projects and future outlook. I'll then close with some remarks on the accomplishments the DTM team has made since we spun the company in 2021, before turning it over to Jeff to review our financial performance and outlook. So with that, 2023 ended strong.
Thanks, Todd and good morning, everyone and thank you for joining.
During today's call I'll discuss our 2023 accomplishments and provide an update on our organic growth projects and future outlook.
I'll then close with some remarks on the accomplishments of the <unk> team has made since we spun the company in 2021 before turning it over to Jeff to review, our financial performance and outlook.
So with that 2023 ended strong we delivered full year, adjusted EBITDA of $924 million, which exceeded our guidance midpoint and represents 10% growth year over year.
David Slater: We delivered full-year adjusted EBITDA of $924 million, which exceeded our guidance midpoint and represents 10% growth year over year. We also executed on the largest construction program in our company's history, and I'd like to thank the team for successfully completing these projects ahead of schedule and on budget. I'd also like to commend the team for their excellent safety performance. We finished the year with only one OSHA recordable.
We also executed on the largest construction program in our company's history.
And I'd like to thank the team for successfully completing these projects.
This schedule and on budget.
I'd also like to commend the team for their excellent safety performance we.
We finished the year with only one osha recordable.
David Slater: One of our best safety years on record. Most notably, we placed our LEAP Phase 1 and 2 expansions in service early, which are fully contracted and directly serve the growing LNG markets along the Gulf Coast. With these expansions completed, we're able to focus construction activities on Phase 3, which is currently running ahead of schedule. On Blue Union, we added additional treating and pipeline capacity, putting us in an advantageous position to quickly ramp up supply to serve the coming LNG demand wave beginning in 2025. Turning to the northeast, we successfully completed our Appalachia Gathering System Phase 2 expansion, which added additional mainline capacity. In Ohio, our Ohio Utica Project trunkline was completed early, and we began collecting revenue under our take-or-pay agreement.
One of our best safety years on record.
Most notably we placed our lead phase one and two expansions in service early which are fully contracted and directly serve the growing LNG markets along the Gulf coast.
With these expansions completed we're able to focus construction activities on phase III, which is currently running ahead of schedule.
On Blue Union, we added additional treating and pipeline capacity, putting us in an advantaged position to quickly ramp supply to serve the coming LNG demand waves beginning in 2025.
Turning to the northeast we successfully completed our Appalachia gathering system phase two expansion.
Which added additional mainline capacity in Ohio, Our Ohio Utica project Trunk line was completed early and we began collecting revenue under our take or pay agreement.
David Slater: On Nexus, we're able to unlock and sell new capacity through hydraulic optimization initiatives. Throughout the year, our business development team successfully executed several new commercial agreements, including our Ohio Utica project, a new supply interconnect on Blue Union in the Carthage area, and an interconnect with the Gillis Access project on LEAP. Additionally, during the fourth quarter, we finalized new agreements that will result in a phase 3 expansion of our Appalachia Gathering System, an expansion of the Tioga Gathering System, and a pipeline expansion on the Blue Union system. The business development team remains focused on progressing our deep, organic project backlog, which currently sits at over $1.3 billion through 2027. On LEAP, we are in advanced discussions for a Phase 4 expansion, which we are now estimating to be between 200 and 400 million cubic feet a day. We have also updated our expansion potential on the LEAP system from 3bcf a day to 4bcf a day. This asset is fully integrated into the Hainesville supply chain.
On Nexus, we're able to unlock and sell new capacity through hydraulic optimization initiatives.
Throughout the year, our business development team successfully executed several new commercial agreements, including our Ohio, Utica project, a new supply interconnect on Blue Union and the Carthage area, and then interconnect with the keyless access project on leap.
Additionally, during the fourth quarter, we finalized new agreements that will result in a phase III expansion to our Appalachia gathering system and expansion of the Tioga gathering system.
And our pipeline expansion on the Blue Union system.
Okay.
The business development team remains focused on progressing our deep organic project backlog, which currently sits at over $1 3 billion 2027.
On leap, we are in advanced discussions for a phase four expansion, which we are now estimated to be between 200, and 400 million cubic feet a day.
We have also updated our expansion potential on the leap system from three Bcf a day two four Bcf a day.
This asset is fully integrated into the Haynesville supply region.
David Slater: Operating today and easily expandable, it provides superior market access and connectivity to the Gulf Coast LNG corridor. LEAP offers tremendous value to our current and future customers, and we feel confident in our ability to gain additional market share. Regarding the LNG permitting pause announced by the Biden administration, we see no material impact to our business in the near term. All LNG demand growth, which will be directly served via LEEDS, is fully permitted and under construction. We continue to view the U.S. Gulf Coast as the premier LNG export region and a critical supply source for our European and international allies. Energy security for our allies will remain a long-term geopolitical priority for the U.S. Additionally, LNG is the largest, most cost-effective, and reliable solution to reduce carbon emissions internationally by displacing coal and supporting the build-out of intermittent renewable energy.
Operating today and easily expandable it provides superior market access and connectivity to the Gulf Coast LNG corridor.
Leap offers tremendous value to our current and future customers and we feel confident in our ability to gain additional market share.
Regarding the LNG permitting pause announced by the by the administration, we see no material impact to our business in the near term.
All LNG demand growth, which will be directly serve air lease is fully permitted and under construction.
We continue to view the U S Gulf coast as the Premier LNG export region and.
And a critical supply source for our European and international Allies.
Energy security for our allies will remain a long term geopolitical priority for the U S.
Additionally, LNG is the largest most cost effective and reliable solution to reduce carbon emissions internationally by displacing coal and supporting the build out of intermittent renewable energy.
David Slater: Our assets are well positioned to support these long-term energy fundamentals and priorities. I'd now like to provide an update on our carbon capture and storage project in Louisiana. In early January, we received our Class 5 well permit, and we are currently drilling a characterization well to confirm our favorable view of the geology of our storage site.
Our assets are well positioned to support these long term fundamentals and priorities.
I would now like to provide an update on our carbon capture and storage project in Louisiana.
In early January we received a class five well permit and we are currently drilling a characterization while to confirm our favorable view on the geology.
Our storage site.
David Slater: Throughout the project, our development approach has been methodical, leveraging our extensive storage, pipeline, and tax credit expertise. Our goal is to minimize our capital at risk, systematically de-risking our CO2 storage site before reaching a final investment decision. We have been closely collaborating with Louisiana DNR, a local geology expert, and actively engaged in community outreach. Adhering to our discipline development philosophy, we are pursuing a phased approach to this project. Phase one will include installing capture equipment and compression at our southernmost treating plant and constructing a dedicated CO2 pipeline to transport captured CO2 to our storage site.
Throughout the project our development approach has been methodical leveraging our extensive storage pipeline and tax credit expertise.
Our goal is to minimize our capital at risk, while systematically de risking our CLC storage site.
We're reaching a final investment decision.
We have been closely collaborating with Louisiana DNR.
Local geology experts and.
And actively engaged and community outreach.
Adhering to our disciplined development philosophy, we are pursuing a phased approach to this project.
Phase one will include installing capture equipment and compression at our southern most trading plant.
And constructing a dedicated sidoti pipeline to transport captured cotwo to our storage site.
David Slater: We expect Phase 1 to go in service in the second half of 2026. Phase 2 will capture CO2 from a second DT midstream treatment plant and is expected to be in service in 2027. As a reminder, the 45Q tax credit will provide the revenue stream for the project. Finally, I wanted to take a moment to reflect on the achievements the DTM team has made since we spun out the company. It's been a very exciting three years.
We expect phase one to go in service in the second half of 2026.
Phase II will capture CLC from our second <unk> midstream.
<unk> plant is expected to be in service in 2027.
As a reminder, the 45 to tax credit will provide the revenue stream for the project.
Finally, I wanted to take a moment to reflect on the achievements. The <unk> team has made since we spun the company.
It's been a very exciting for years.
David Slater: Since the spinoff, we've achieved significant growth while maintaining a high-quality pure plate natural gas asset portfolio. We have delivered 9% annual adjusted EBITDA growth, which has outpaced gas-focused midstream peers. We have also consistently grown the dividend, including today's announced increase of 7%. Driving this growth has been our high-quality natural gas pipeline, which represented less than 50% of our business mix that it is now and has grown to represent about two-thirds of our business today, ranking DTM as having the highest natural gas pipeline segment mix in the peer group. Our portfolio continues to be well-contracted, with a high level of taker pay agreements and an average contract tenor of nine years, the same contract tenor as when we spun the company in 2021.
Since the spinoff, we've achieved significant growth, while maintaining a high quality pure play natural gas asset portfolio we.
We have delivered 9% annual adjusted EBITDA growth, which has outpaced gas focus midstream peers.
We have also consistently grown the dividend, including today's announced increase of 7%.
Driving this growth has been our high quality natural gas pipelines segment.
Which represented less than 50% of our business mix that spin and has grown to represent about two thirds of our business today ranking DCM as having the highest natural gas pipeline segment mix in the peer group.
Our portfolio continues to be well contracted with a high level of take or pay agreements and an average contract tenure of nine years.
The same contract tenor as when we spun the company in 2021.
David Slater: We also have no direct commodity exposure, a unique feature among our pure, integrated wellhead to market pipeline asset portfolio is positioned to serve growing demand markets from two world-class dry gas spaces and features a deep organic growth project backlog that is grounded in supportive long-term market fundamentals. One of our goals from the onset of the spin-off was to achieve an investment grade credit rating, and we are in a very strong position to achieve that this year. We have maintained a strong balance sheet and financial flexibility with our current leverage in a very comfortable position. Our ESG program has also made great strides since the spin-off and is in a very strong position today. We've improved our MSCI rating two notches with our current rating at AA, the second highest rating possible. This positions DTM as having a best-in-class rating.
We also have no direct commodity exposure a unique feature among our peer group.
Our integrated wellhead to market pipeline asset portfolio is positioned to serve growing demand markets.
From two world class dry gas basins and features a deep organic growth project backlog.
It is grounded in support of long term market fundamentals.
One of our goals from the onset of the spin was to achieve an investment grade credit rating and we are in a very strong position to achieve that this year, we have maintained a strong balance sheet and financial flexibility.
With our current leverage in a very comfortable position.
Our ESG program has also made great strides since the spin and has been a very strong position today.
We have improved our MSCI rating two notches with our current rating at double a the second highest rating possible.
This positions DPM as having a best in class rating.
David Slater: Our safety total recordable incident rate has consistently improved each year for a cumulative 83% improvement since then. Additionally, our community giving and volunteer hours on a per employee basis are leading among our sector peers. All of these great accomplishments could not have been achieved without the hard work and dedication from our individual team members, who have continued to demonstrate excellent performance and professionalism. Additionally, the team's unwavering commitment to customer service sets them apart, consistently delivering customer satisfaction and fostering strong relationships, a distinction that has been independently recognized as best in class within the sector, where we received the top ranking in the MassGel customer service study of Midstream Company. In summary, I am very proud of the DTM team.
Our safety total recordable incident rate has consistently improved each year for accumulative, 83% improvement since spin.
Our community, giving and volunteer hours on a per employee basis is leading among our sector peers.
All of these are great accomplishments could not have been achieved without the hard work dedication from our individual team members.
We have continued to demonstrate excellent performance and professionalism.
Additionally, the team's unwavering commitment to customer service sets them apart consistently delivering customer satisfaction and fostering strong relationships at the <unk>.
Stinks and that has been independently recognized as best in class within the sector.
Where we received the top ranking in the mass steel customer service study of midstream companies.
In summary, I am very proud of the <unk> team their dedication to delivering exceptional results for our shareholders customers and communities is foundational to our business performance and future success.
Jeff Jewell: Their dedication to delivering exceptional results for shareholders, customers, and communities is foundational to our business performance and future success. It is an honor to work with this group, and I truly look forward to what the future has in store for the company. I'll now pass it over to Jeff to walk you through our financial results. Thanks, David, and good morning, everyone.
It is an honor to work with this group and I truly look forward to what the future has in store for the company.
I'll now pass it over to Jeff to walk you through our financial results and outlook.
Thanks, David and good morning, everyone.
Jeff Jewell: As David mentioned, we delivered overall 2023 adjusted EBITDA of $924 million, which is up 10% over the prior year driven by our pipeline segment. For the fourth quarter, we delivered overall adjusted EBITDA of $239 million, which was an increase of $3 million over the third quarter. When reviewing our segment quarterly results, Our pipeline segment was up $11 million over the prior quarter, driven by the early in-service of our LEAP expansion, higher revenues at our pipeline joint ventures, and increased rates on new contracts at our Washington 10 storage facility. Our gathering segment results were $8 million lower than the prior quarter, due to a $6 million environmental reserve adjustment recognized in the third quarter and modestly lower volumes in the Haynesville, partially offset by higher volumes in the Northeast.
As David mentioned, we delivered overall 2023, adjusted EBITDA of $924 million.
Which is up 10% over the prior year.
Driven by our pipeline segment.
For the fourth quarter, we delivered overall adjusted EBITDA of $239 million.
Which was an increase of $3 million over the third quarter.
Reviewing our segment quarterly results are.
Our pipeline segment was up $11 million over the prior quarter.
Driven by the early in service of our leap expansions hi.
Higher revenues at our pipeline joint ventures, and increased rates on new contracts at our Washington, 10 storage facility.
Our gathering segment results were $8 million lower than the prior quarter.
Due to a $6 million environmental reserve adjustment recognized in the third quarter.
And modestly lower volumes in the Haynesville, partially offset by higher volumes in the northeast.
Operationally for the quarter.
Jeff Jewell: Total gathering volumes across both the Haynesville and Northeast averaged around 3.1 BCF a day, up around 100 million cubic feet a day from the third quarter, driven by 10% growth in the Northeast. Now, we are looking forward to 2024 and beyond. As we have done in the past, we are providing current year guidance as well as an early outlook for next year. Additionally, we are providing a long-term growth target. For 2024, our adjusted EBITDA guidance range is 930 to 980 million, reflecting a $10 million midpoint increase from our prior 2024 Early Outlook.
Total gathering volumes across both the Haynesville and northeast averaged around three one Bcf a day.
Up around 100 million cubic feet, a day from the third quarter.
Driven by 10% growth in the northeast.
Now looking forward to 2024 and beyond.
As we have done in the past we are providing the current year guidance as well as an early outlook for next year.
Additionally, we are providing a long term growth target.
For 2024, our adjusted EBITDA guidance range is 930 to 980 million rift.
Reflecting a $10 million midpoint increase from our prior 2024 early outlook.
Jeff Jewell: Our 2025 Early Outlook Range for Adjusted EBITDA is $980 million to $1.04 billion, with the midpoint representing a 6% increase over the 2024 guidance midpoint. Our adjusted EBITDA guidance for 2024 and 2025 is supported by the incremental contribution from our growth investors, as well as expected activity from our major customers. Longer term, we are targeting adjusted EBITDA growth of 5 to 7 percent, which is supported by our strong organic backlog, Advantaged Asset Positions, Our Strong Balance Sheet, and High Level of Take or Pay Contract. Our 2024 growth capital guidance is between $300 million and $375 million.
Our 2025 early outlook range for adjusted EBITDA is 980 million to one 4 billion.
At the midpoint, representing a 6% increase over the 2024 guidance mid point.
Our adjusted EBITDA guidance for 2024, and 2025 is supported by the incremental contribution.
From our growth investments as.
And as well as expected activity from our major customers.
Longer term, we are targeting adjusted EBITDA growth to be 5% to 7%.
Which is supported by our strong organic backlog.
Advantaged asset positions, our strong balance sheet and high level of take or pay contracts.
Our 2020 for growth capital guidance is $300 million to $375 million.
Jeff Jewell: For 2025, we expect a similar overall level of growth investment as 2024. We currently have approximately $50 million of committed spend for 2025 and are working to advance a number of organic growth opportunities for FID. Our board has declared a quarterly dividend increase to 73.5 cents per share, which represents a 7% increase.
For 2025, we expect a similar overall level of growth investment as 2024.
We currently have approximately $50 million of committed spend in 2025.
And are working to advance a number of organic growth opportunities too.
Our board has declared a quarterly dividend increase to $73.05 per share.
Which represents a 7% increase.
Jeff Jewell: Going forward, we expect to increase the dividend annually in line with our long-term adjusted EBITDA growth target of 5 to 7 percent. From a balance sheet perspective, we are pleased with our positioning on leverage and progress towards obtaining an investment-grade credit rating. Our plan is to de-lever through 2027 into the lower threes for on-balance sheet debt and into the mid threes for proportional depth. We have continued to execute on the plans we have shared with the rating agencies, and the credit profile for our largest customers continues to improve. Therefore, we expect to attain an investment grade credit rating by the end of 2024. And with that, I'll now pass it back over to David for closing remarks. Thanks, Jeff. So, in summary, we are highly confident in our full-year guidance for 2024 and early outlook for 2025. Over the course of her history, both pre-spinoff from DTE and post-spinoff,
Going forward, we expect to increase the dividend annually in line with our long term adjusted EBITDA growth target of 5% to 7%.
From a balance sheet perspective, we are pleased with our positioning on leverage and progress towards obtaining an investment grade credit rating.
Our plan is to Delever through 2027 into the low threes for on balance sheet debt and.
And into the mid threes for proportional debt.
We have continued to execute on the plans we have shared with the rating agencies and the credit profile for our largest customers continues to improve.
Therefore, we expect to obtain an investment grade credit rating by the end of 2024.
And with that I'll now pass it back over to David for closing remarks.
Thanks, Jeff.
In summary, we are highly confident in our full year guidance for 2020 for an early outlook for 2025.
Over the course of our history, both pre spinoff from DTE and post spin off.
We have a proven track record of strong performance, even in downward commodity price cycles.
David Slater: We have a proven track record of strong performance, even in downward commodity price cycles. Our pure-play natural gas portfolio is well-contracted with long-term take-or-pay agreements. We have no commodity exposure, and our integrated assets provide critical pipeline capacity to premium demand markets, which are expected to grow significantly between now and the end of the decade. We have a sizable organic project backlog consisting of traditional midstream and tangible energy transition opportunities, which will deliver long-term value as we grow EBITDA and provide a reliable, growing dividend to our shareholders. And with that, we can now open up the line for questions. Thank you. At this time, I would like to remind everyone, in order to ask a question, press the star and the number one on your telephone keypad. We'll go first to John McKay at Goldman Sachs. Hey, good morning, everyone.
Our pure play natural gas portfolio is well contracted with long term take or pay agreements.
We have no commodity exposure and our integrated assets provide critical pipeline capacity to premium demand markets.
Which are expected to grow significantly between now and the end of the decade.
We have a sizeable organic project backlog consisting of traditional midstream intangible energy transition opportunities, which will deliver long term value as we grow EBITDA and provide a reliable growing dividend to our shareholders.
And with that we can now open up the line for questions.
Thank you 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'll go first to John Mackay at Goldman Sachs.
Hey, good morning, everyone and thank you for the time, maybe we'll just start on that on the gas macro you guys have exposure to both the northeast and.
The Haynesville, obviously were seeing gas around about 60, right now would just be curious to see hear from you guys. What youre hearing from your producer customers.
They are not you are seeing any shut ins on your footprint right now and I guess, what you've baked into the 24 guide in terms of activity levels from the fourth quarter. Thank you.
John McKay: Thank you for your time. Maybe we'll just start on the gas macro. You guys have exposure to both the Northeast and the Haynesville. Obviously, we're seeing gas around $1.60 right now.
Okay.
Good morning, John and yes, that's it.
A topic, that's front and center on most folks' mind right now is the commodity.
David Slater: We'd just be curious to hear from you guys what you're hearing from your producer customers, whether or not you are seeing any shut-ins on your footprints right now, and I guess what you've baked into the 24 guide in terms of activity levels from the fourth quarter. Thank you. Good morning, John.
Pricing Street mirroring the weather forecast that we've had this winter.
I guess, what I, what I'd say is our current guidance John reflects the most current information that we have from all of our customers.
The other item I'd mention here is that we have significant MVC protection across our gathering segment.
David Slater: And yeah, that's a topic that's front and center on most folks' minds right now as commodity prices seem to be mirroring the weather forecast that we've had this winter. I guess what I'd say is our current guidance, John, reflects the most current information that we have from all of our customers. The other item I mentioned here is that we have significant MVC protection across our gathering segment that protects the downside. You had asked about the potential for shut-ins.
That protects the downside.
You had asked about potential for shut ins last year, when we saw very weak pricing in the summertime, we did see some modest shut ins in our portfolio and we've taken that learning last year and reflected that in our guide.
For this year, so the way I would.
Describe our guidance says, we're very aware of the current price environment.
We are very close to all of our customers and their plans.
David Slater: Last year when we saw very weak pricing in the summertime, we did see some modest shut-ins in our portfolio, and we've taken that learning from last year and reflected that in our guide for this year. So the way I would describe our guidance this year is that we're very aware of the current price environment. We are very close to all of our customers and their plans, and all of that's reflected in our 2024 guide. All right, that's clear. Thank you for that.
And all of that's reflected in our 2024 guide.
All right that's clear thank you for that maybe.
Maybe just looking to the new long term EBITDA growth guidance of 5% to 7%. You also mentioned you have effectively 60% coming from pipelines now if we're thinking about that long term rate do.
The pipeline has continued to take share from gathering should they both kind of similarly anything on kind of that mix when you're looking towards the outer years. Thank you.
David Slater: Maybe just looking to the new long-term EBITDA growth guidance of 5% to 7%, you also mentioned you have hit effectively 60% coming from pipelines now. If we're thinking about that long-term rate, do... Does pipelines continue to take share from gathering? Should they both kind of grow similarly? Anything on kind of that mix when you're looking towards the outer years.
Yeah, Great question John.
As we sit here today pipelines is.
About two thirds of the portfolio and a significant increase from when we spun the company.
And that's been very intentional I mean, we've been very focused on growing that segment.
It obviously carries a higher multiple.
David Slater: Thank you. Yeah, great question, John. So, as we sit here today, pipelines are about two-thirds of the portfolio and a significant increase from when we spun the company. And that's been very intentional.
Its the most stable revenue segment in our portfolio and.
In terms of that five to seven gross.
Forward.
I'd refer you to the deck, Jon we laid out on slide 14, a nice description of the backlog and we broke it out by segment.
And approximately 60% of the capital and the backlog is pointed towards the pipeline segment. So.
David Slater: I mean, we've been very focused on growing that segment. It obviously carries a higher multiple. It's the most stable revenue segment in our portfolio. In terms of that five to seven growth, forward, I'd refer you to the deck, John.
Our plan is to continue to grow it proportionately at about the same.
Size is it represents in the portfolio today.
David Slater: We laid out on slide 14 a nice description of the backlog, and we broke it out by segment, and approximately 60% of the capital in the backlog is pointed towards the pipeline segment. Our plan is to continue to grow it proportionally at about the same size as it represents in the portfolio today. All right, thank you very much, and I appreciate all the new detail on the subsector breakdown as well. Thank you. Thanks, John.
Alright, Thank you very much and appreciate all the new detail on the sub sector breakdown as well. Thank you.
Thanks, John I appreciate that.
We'll move to our next question from Jeremy Tonet at Jpmorgan.
Hi, good morning.
Hey, Jeremy.
Just wanted to talk about the guidance range for 'twenty for a little bit more if you could dive into what maybe could drive high end versus low end there.
What amount of.
The of EBITDA would be subject to maybe producer activity shifting and also I guess, the Carthage connector what type of impact do you see that having any.
Jeranie Tonette: Appreciate that. We'll move to our next question from Jeranie Tonette at JP Morgan. Hi, good morning. Morning, Jeremy.
David Slater: Just wanted to talk about the guidance range for 24 a little bit more, if you could dive into what, you know, maybe to drive high end versus low end there, you know, what amount of the EBITDA would be subject to maybe producer activity shifting? And also, I guess, you know, the Carthage connector, what type of impact do you see that having in the year? Jeremy, the two ways that we laid out in the guidance, we feel really confident in that two ways. And like I mentioned earlier with John's question, we've certainly calibrated to what I'll call the current realities in the commodity space that may affect some of our customers and factored in the behaviors that we saw last summer when we experienced some really weak cash prices. So that's baked into the guidance in two ways.
Sure.
Yes, Jeremy.
Two way that we laid out in the guidance, we feel really confident.
And that two way and like I mentioned earlier.
Earlier with John's question.
We've certainly calibrated to what I'll call. The current realities in the commodity space that may affect some of our customers.
<unk>.
Factored in the behaviors that we saw last summer when we experienced some really weak cash prices. So thats baked into the guidance two ways. So feel very confident that we're going to be in.
We're going to be in between those goalposts.
In terms of some of the incremental activity in the portfolio.
Getting the Blue Union and leap system more deeply integrated to the Haynesville basin has been a strategic priority for us.
David Slater: So I feel very confident that we're gonna be in, we're gonna be in between those goalposts. In terms of some of the incremental activity in the portfolio, you know, getting the Blue Union and LEAP system more deeply integrated into the Hainesville Basin has been a strategic priority for us. That Carthage Interconnect is an example of that, just getting it more deeply tied to the entire breadth and depth of the basin.
That Carthage interconnect.
As an example of that just getting it more deeply tied to the entire breadth and out of the basin.
Lots of customers sitting over there that.
Looking for incremental egress down into the Gulf region.
And we're very bullish that interconnect that it'll drive incremental activity and potentially helps support incremental lead expansion.
Got it thank you for that.
David Slater: Lots of customers sitting over there that are looking for incremental egress down into the Gulf region, and we're very bullish that InterConnect will drive incremental activity and potentially help support incremental LEAP expansion. Got it. Thank you for that. And just want to see, I guess, you know, over time, how you see capital allocation evolving for the company you have. CapEx stepped up a bit this year, and it seems like there's still more opportunities. Also, seems like there is, you know, M&A potential out there in the market, which would argue for leaving some balance sheet capacity. So I just wonder how you see balancing these competing priorities. Yeah,
And just.
Just wanted to see I guess.
Over over time, how are you.
You see capital allocation evolving for the company you have.
Capex stepped up a bit this year and it seems like there's still more opportunities.
Also it seems like there is M&A potential out there in the market in which we are.
Argue for leaving some balance sheet capacity. So just wondering how you see balancing these competing priorities.
Yeah.
The way I think about it and as we laid out in the deck. We've got this really robust organic backlog of opportunities in everything that we have details in the disclosure are actively being worked so we're in a really advantaged position of having that deep organic backlog, which.
Really drive higher returns for capital deployment.
So our priority will be to deploy capital there and monetize those higher returns that will be priority number one.
David Slater: The way I think about it, and as we've laid out in the deck, we've got this really robust organic backlog of opportunities, and everything that we've detailed in the disclosure is actively being worked. So we're in a really advantageous position of having that deep organic backlog, which typically drives higher returns for capital deployment. So our priority will be to deploy capital there and monetize those higher returns. That'll be priority number one.
We announced 7% dividend increase or our plan and our goal is to continue to grow that dividend and make it very durable for investors. So people have confidence in it.
Currently our primary.
Tool to return capital to shareholders.
In terms of M&A.
Lots of assets and the market losses.
David Slater: You know, we announced a 7% dividend increase. Our plan and our goal is to continue to grow that dividend and make it very durable for investors, so people have confidence in it.
Activity happening in the space, especially upstream.
I don't think Thats going to abate I think we're in a consolidation mode right now lots of bolt on opportunities in and around us.
Those will just have to compete with the organic opportunities that we're pursuing.
David Slater: That's currently our primary tool to return capital to shareholders. In terms of M&A, there are lots of assets in the market, and lots of activity happening in the space, especially upstream. I don't think that's going to abate.
We're very aware of all of those bolt on opportunities around us.
We'll assess them and hold them to the standard of our organic and if it makes sense.
Pursue that's one of the reasons why Jeff's kept the balance sheet is clean and pure as he has and why we continue to strengthen balance sheet.
David Slater: I think we're in a consolidation mode right now. Lots of bolt-on opportunities are in and around us, but those will just have to compete with the organic opportunities that we're pursuing. We're very aware of all those bolt-on opportunities around us. We'll assess them and hold them to the standard of our organic growth, and if it makes sense, we'll pursue them. That's one of the reasons why Jeff has kept the balance sheet as clean and pure as he has and why we continue to strengthen the balance sheet and have that dry powder sort of in the cupboard if opportunities present themselves. Got it. That's helpful. I'll leave it there. Thank you very much. Thanks a lot, Jeremy. We'll go next to Spyro Dunis at City.
To have that dry powder sorted in the cupboard if opportunities present themselves.
Got it that's helpful. I'll leave it there thank you very much.
Thanks, a lot Jeremy.
We'll go next to Spiro <unk> at Citi.
Thanks, operator, good morning, guys.
First question, maybe a two part one on the leap expansion.
Can you walk us through the scope of getting that extra one Bcf a day pipeline.
How much of that is going to ultimately be dependent on new LNG.
And the second part of the question as we think about the phase <unk> part of the expansion that you are especially moving forward soon is any of that impacted right now by vessel.
Litigation going on right now in Haynesville.
Good morning, Spiro great questions.
Spyro Dunis: Thanks, operator. Good morning, guys. First question, maybe a few part one on the LEAP expansion. First, can you walk us through the scope of getting that extra one VCF a day out of the pipeline and how much of that's going to ultimately be dependent on new LNG FIDs? And the second part of the question is, we think about the phase four part of the expansion that you're potentially moving forward with soon. Is any of that impacted right now by some of the litigation going on right now in the agency? Morning, Spiro.
So I'll unpack that for our phase four we're in some detailed conversations with a handful of shippers.
These are long term shippers with a long view on the basin and LNG export.
I think.
Those conversations are really driven by the commercial value that the system offers.
Like I talked about earlier with Jeremy it's inter connectivity to numerous supply points in the basin.
And it's egress capacity to multiple market.
David Slater: Great questions. So I'll unpack that. For our phase four, you know, we're in some detailed conversations with a handful of shippers. These are long-term shippers with a long view of the basin and LNG export. I think... Those conversations are really driven by the commercial value that the system offers. Like I talked about earlier with Jeremy, it has interconnectivity to numerous supply points in the basin, and it has egress capacity to multiple market areas outside of the basin, both to the south and also in the north.
Market areas out of the basin, both to the south but also in the north.
It's very well connected and I think the customers are recognizing that a lot of.
Optionality for them to move their product to market.
I think that's driving the conversation more than some of the drama that's unfolding in the basin with some other pipelines.
So that's my perspective on that spirit in terms of extending that runway from three Bcf a day to four Bcf a day, that's sort of evolved organically driven by a couple of things.
We just completed phase one and phase two in more now.
David Slater: It's very well connected, and I think the customers are recognizing that there is a lot of optionality for them to move their product to market. And I think that's driving the conversation more than some of the drama that's unfolding in the basin with some other pipelines. So that's my perspective on that, Spiro, in terms of extending the runway from 3bcf a day to 4bcf a day. That's sort of evolved organically, driven by a couple things.
His schedule on phase three so we're getting a much better.
Feel from an engineering perspective, how the systems are operating where potential incremental gas is coming in on the system.
Fix the hydraulics of the system.
As we have inbound requests for capacity and running different studies, it's become clear to us that we actually can expand this.
David Slater: You know, we've completed phase one and phase two, and we're now ahead of schedule on phase three. So we're getting a much better feel from an engineering perspective about how the system's operating, where potential incremental gas is coming in on the system, and that affects the hydraulics of the system. You know, as we have inbound requests for capacity and run different studies, it's become clear to us that we actually can expand this beyond three BCF a day up to, you know, the four BCF a day neighborhood. So that's obviously been well received in the market. We have no limitations on that right now, like some other projects have.
Beyond three Bcf a day up to the.
Four Bcf a day neighborhood.
So that's obviously been well received in the market.
We have no limitations on that right now like some other projects.
So we have a clear runway to expand on relatively short notice with relatively low execution risks.
To that higher number and if you look at.
Whats under construction in deed in terms of incremental demand coming over the balance of this decade.
Definitely a need for significant incremental pipeline capacity, we lay that out in our deck and I'd point you to that slide just to look at the numbers.
David Slater: So we have a clear runway to, you know, expand on relatively short notice with relatively low execution risks that higher number. And if you look at what's under construction and FID in terms of incremental demand coming over the balance of this decade. There's definitely a need for significant incremental pipeline capacity. We lay that out in our deck, and I point you to that slide just to look at the numbers. Got it. That's a very subtle color.
Got it Thats helpful.
Thanks for that David.
Second question just go into the the Capex backlog of over $1 3 billion.
And then you sort of laid out $24 25, pretty clearly and then it seems like the capital spending in 'twenty six 'twenty seven maybe is around that.
So we're at $300 million level I'm curious, if you look at that backlog and sort of tether that to the 5% to 7% EBIT growth outlook does that level of spending gets your 5% to 7% or is there an assumption there that you would be adding on more.
Spyro Dunis: Thanks for that, David. Your second question is going to the CapEx backlog of over $1.3 billion. They sort of laid out 24 and 25 pretty clearly, and then it seems like the capital spending in 26, 27 maybe is around that sort of $300 million level. I'm curious, if we look at that backlog and sort of tether that to the 5 to 7 percent EBITDA growth outlook, does that level of spending get you 5 to 7 percent, or is there an assumption there that you would be adding on more? No, but if you do the simple math on the EBITDA multiple, that'll get you the 5 to 7% growth rate. Got it. It's very helpful, guys.
No.
You do the simple math on the EBITDA multiple that'll get you the five 7% growth rate.
Got it that's helpful guys. Thanks for the time.
Yes, no problem.
And as a reminder, if you'd like to ask a question. Please press star one we'll move next to Robert Moskow <unk> at Mizuho Securities.
Hey, good morning, everyone.
I'm wondering if you could speak to the viability of some of those northeast pipeline expansions you flagged.
That capex slide to understand there might be commercial desire.
What's your thoughts on how they can navigate the regulatory backdrop in the northeast.
Thanks.
Sure, Rob I'd say millenniums, probably.
One of the best examples of that they've.
They're in a open season process that had an open season on expansion that ties into the Algonquin expansion.
David Slater: Thanks for the time. Yeah, no problem. And as a reminder, if you'd like to ask a question, please press star one. We'll move next to Robert Mosca from Mizuho Security. Hey, morning, everyone.
I think Enbridge has talked about publicly recently so.
Those two projects are sort of hand in gloves.
And both of them are in active discussions with with shippers as we speak so youre very real they are active.
Robert Mosca: I'm wondering if you could speak to the viability of some of those Northeast pipeline expansions you flagged in that CapEx slide to understand there might be a commercial desire, but perhaps your thoughts on how they could navigate the regulatory backdrop in the Northeast. Sure, Rob. I'd say Millennium's probably one of the best examples of that, Dave.
There is clearly an incremental demand need.
That area, there's obviously a lot of political drama around this topic.
Around the reliability topic.
But.
They are very real and they are being.
Yeah.
We're in active conversations with with long term shippers around this as we speak.
Got it I appreciate it David.
And then my second question and some consolidation on your acreage in the Haynesville could you talk about maybe base case assumptions on how it affects your volume outlook and growth plan in that region.
David Slater: They're in an open season process. They had an open season on expansion that ties into the Algonquin expansion that I think Amber just talked about publicly recently, so Both those two projects are sort of hand in glove, and both of them are in active discussions with shippers as we speak, so they're very real; they're active. There's clearly an incremental demand need in that area. There's obviously a lot of political drama around this topic, around the reliability of this topic. But they're very real, and they're being, you know.
Outside of having a stronger credit customer.
Okay.
Yes, I mean, that's a great question that.
Until that merger closes.
The new entity emerges.
Okay.
When we look at it and you look at the acreage overlap it.
Just looking at the acreage map you can see the.
Kind of the industrial engineering rationale around that merger the acreage side by side.
I think it is going to enable them and I think Chesapeake has said this publicly.
David Slater: We're in active conversations with long-term shippers around this as we speak. Got it. Appreciate it, David.
April them to drill longer laterals more efficient capital deployment too.
David Slater: And then for my second question, and some consolidation on your acreage in Haynesville, could you talk about maybe base case assumptions on how it affects your volume outlook and growth plan in that region, just outside of having a stronger credit rating? Yeah, I mean, that's a great question that until that merger closes, and you know, that the new entity emerges, you know, when we look at it and you look at the acreage overlap, it, you know, Just looking at the acreage map, you can see the kind of the industrial engineering rationale around that merger. The acreage is side-by-side.
Released the same quantity of gas.
I think once the merger happens.
There should be a good opportunity for us to sit down with the new entity look at the dedications that we have the swim dedications look at where maybe theres pockets of acreage and <unk>.
And within that dedication that maybe has the Chesapeake label on it.
I suspect there'll be opportunity, but it's really going to be a question and post.
Post merger.
Two.
Having more clarity on what those incremental opportunities may be we're certainly bullish the transaction.
From a credit party counterparty exposure.
David Slater: I think it's going to enable them, and I think Chesapeake has said this publicly, it'll enable them to draw longer laterals, more efficient capital deployment to release the same quantity of gas. So I think once the merger happens, there should be a good opportunity for us to sit down with the new entity, look at the dedications that we have, the SWIN dedications, look at where maybe there's pockets of acreage, an island within that dedication that maybe has the Chesapeake label on it. I suspect there'll be opportunity, but it's really going to be a question post, post-merger about having more clarity on what those incremental opportunities may be. We're certainly bullish on the transaction from a credit party counterparty exposure point of view. It's a significant uplift for us and I think it is one of the key items in our journey to investment grade for DTM. I got it. Appreciate the time, everyone. Next, we'll go to Sunil Saibal at Seaport Global.
It's a significant uplift for us and I think as one of the key items in our journey to investment grade for TTM.
Got it I appreciate the time everyone.
Next we'll go to Sunil Sibal at Seaport Global.
Yes, hi, good morning.
So all the clarity on the call.
So first question on your investment grade ratings Todd.
Targeted by year end.
So I was just curious are there any specific milestones that the rating agencies have laid out for you.
Forward that.
Help them get there or is it just basically executing on quantity for guidance.
Yeah.
So I'd say there are a couple of things that the agencies have made very clear and I think when you read the reports that they publish on us they alluded to them in the reports so I'd say the first item would be we're currently on positive outlook at Finch.
Sunil Saibal: Yes, hi, good morning, and thanks for all the clarity on the call. So, first question on your investment grade ratings targeted by year-end 2024. So, I was just curious, you know, are there any specific milestones that the rating agencies have laid out for you for 2024 that, you know, help them get there, or is it just basically, you know, executing on the 2024 guidance? So I'd say there are a couple things that the agencies have made very clear, and I think when you read the report that they published on us, they allude to them in the report.
They all mentioned.
Southwestern achieving investment grade, which the.
The original plan for southwestern was to achieve investment grade. This year. So I think the merger as an accelerant to that.
The agencies have already.
Publicly stated that the new merged entity would would be investment grade.
Think thats a catalyst that.
Accelerates our journey to two investment grade, it's one of the key measures that the agencies have mentioned.
In terms of our move from where we are to investment grade and then the other item is what you alluded to which is just continuing to have a disciplined execution of the detailed plans that we share with the rating agencies since we spun the company and we're definitely doing that.
David Slater: So I'd say the first item would be that we're currently on a positive outlook at Finch. They all mentioned Southwestern Achieving Investment Grade, which the original plan for Southwestern was to achieve investment grade this year. So I think the merger is an accelerant to that. The agencies have already publicly stated that the new merged entity would be investment grade.
We'll have an opportunity to sit down.
Spring to do are our annual check checkup, and we'll be demonstrating.
<unk> to them that we continue to execute on that plan and deliver the outcomes that they were expecting.
David Slater: So I think that's a catalyst that accelerates our journey to investment grade. It's one of the key measures that the agencies have mentioned in terms of our move from where we are to investment grade. And then the other item is what you alluded to, which is just continuing to have a disciplined execution of the detailed plans that we share with the rating agencies since we started this company. And we're definitely doing that, and we'll have an opportunity to sit down in the spring to do our annual checkup, and we'll be demonstrating again to them that we continue to execute on that plan and deliver the outcomes that they were expecting. So I think we're well positioned to achieve that later in the year. And then, on the 1.3 billion backlog that you laid out for the projects, I was curious if you could talk a little bit about some puts and takes, which might, you know, pull that backlog either up or might lead to some pruning in the backlog, you know, as you go along. Yeah, that's another good question.
So I think we're well positioned to achieve that later in the year.
Got it.
And then on the $1 2 billion backlog that you've laid out on the.
Project I was curious if you could talk.
A little bit about some puts and takes.
Which Mike Bullock backlog, either up or might lead to some tuning in the backlog as we go along.
Yeah. That's that's another good question I'd say, the one area that has been evolving in the backlogs. So I'd say, our two core areas pipeline and gathering.
Lots of projects in different.
Stages of the development cycle. Some you can see we are.
We brought a few in service summer.
Construction on a few some are in what I'll call late stage development.
And some further out our earlier stage development, but the fundamentals around every one of these projects that we detailed our strong.
And we've got line of sight to these expansion so.
David Slater: I'd say the one area that has been evolving in the backlogs. So I'd say our two core areas, pipeline, and gathering. Lots of projects in different, you know, stages of the development cycle. Some you can see, you know, we brought a few in service, some are, you know, we're under construction on a few, some are in what I'll call late stage development, and some further out in our earlier stage development. But the fundamentals around every one of these projects that we detailed are strong, and we've got line of sight to these expansions. So,
That's what I'll call our current core.
Business platforms. The one that's emerging in the energy transition that one is emerging we laid out a lot of detail in the deck around our Louisiana carbon capture and storage project.
But there are other opportunities that are emerging and growing in that segment I would say if there is any reallocation happening over time.
My intuition would be that the energy transition segment.
David Slater: That's what I'll call our current core business platforms. The one that's emerging, the energy transition, that one is emerging. We laid out a lot of detail in the deck around our Louisiana carbon capture and storage project, but there are other opportunities that are emerging and growing in that segment. I'd say if there is any reallocation happening over time, my intuition would be that the energy transition segment grows quicker or attracts more capital quicker than some of the other segments.
ROE was quicker or or attracts more capital quicker than some of the other segments. Just it just feels like it's on the verge of really stepping forward quickly, especially with a lot of the tax incentives that have been laid out.
Or.
Really accelerants to some of these investment opportunities.
So.
Just one clarification on that so do you mean.
Opportunity said might be widening beyond Ccs, what do you or is it more of.
Ccs is kind of a team's success in that.
Yes, I think theres more beyond that beyond just the Louisiana, Ccs I think for US, Louisiana Ccs is demonstrating to.
David Slater: It just feels like it's on the verge of really stepping forward quickly, especially with a lot of the tax incentives that have been laid out that are really accelerant to some of these investment opportunities. So just one clarification on that: do you mean, you know, that opportunity set might be widening beyond CCS for you, or is it more of, you know, CCS as you kind of achieve success in that? Yeah, I think there's more beyond just the Louisiana CCS. I think for us, Louisiana CCS is demonstrating to the market that we are... very capable of executing a CCS project in a disciplined way. I think the low-carbon fuels we laid out are a really interesting space that's growing quickly, and taking our CCS expertise to third parties and really growing a third-party carbon capture and storage business is very real for us as I look out over the next five years.
The market that we are.
Very capable to execute.
Ccs project in a disciplined way.
I think the low carbon fuels, which we laid out is a really interesting space is growing quickly and taking our ccs expertise to third parties and really growing our third party carbon capture and storage business.
It's very real for us as I look out over the next five years.
Okay got it thanks for that.
Youre welcome.
And there are no further questions at this time I would like to turn the conference over to David Slater for closing remarks.
Well. Thank you very much for your time this morning, and thank you very much for your interest on DCM. We greatly appreciate everyone as investors and I look forward to meeting everyone in person at the next conference.
David Slater: Okay, I got it. Thanks for that. You're welcome, and there are no further questions at this time. I would like to turn the conference over to David Slater for his closing remarks. Well, thank you very much for your time this morning. And thank you very much for your interest in DTM. We greatly appreciate everyone as investors, and I look forward to meeting everyone in person at the next conference. Have a great Friday, and enjoy your weekend.
Have a great Friday and enjoy your weekend.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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David Slater: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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