Q4 2023 Summit Midstream Partners LP Earnings Call

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

At this time all participants are in a listen only mode. After the presentation. There will be a question and answer session. Please note that today's conference is being recorded I would now like to pass the call over to the director of Finance and Treasurer Investor Relations Randall Barton.

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 presentation section of our quarterly results section with me today to discuss our fourth quarter of 2023 financial and operating results.

She's got Nicky, our President and Chief Executive Officer, and Chairman Bill Moore, Our Chief Financial Officer, along with other members of our senior management team.

Before we start I'd like to remind you that our discussion today may contain forward looking statements. These statements may include but are not limited to our estimates of future volumes operating expenses and capital expenditures. They may also include statements concerning anticipated cash flow liquidity business strategy and other plans and objectives for future operations.

Although we believe that these 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.

Our 2023 annual report on Form 10-K, which will be filed soon 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 directly comparable GAAP measures in our most recent earnings release.

I'll turn the call over to Heath.

Thanks, Randall and good morning, everyone.

For joining us today to discuss our fourth quarter and full year 2023 results.

We will also discuss our current 2024 outlook, which is looking to be another solid year. Despite the low gas price environment that we're in.

But first I'd like to provide a brief update to our strategic alternatives review.

The process, which we launched in October of 2023 remains very active.

We are continuing to evaluate multiple opportunities ranging from asset sales to partnership level transactions, all with the goal of maximizing value for our unit holders.

While we have not set a definitive timeline to complete our strategic alternatives review, we have made substantial progress over the past several months and I believe we are entering into late stages of the review.

We remain very excited about the opportunity set to further maximize value for our unit holders and we look forward to providing a more fulsome update in the near future.

Now onto their fourth quarter in 2023 results.

Summit delivered fourth quarter, adjusted EBITDA of 75 million and full year of 2023, adjusted EBITDA of 267 million, which represents about 25% EBITDA growth from the prior year.

During the year, we generated over $125 million of distributable cash flow and just shy of $60 million of free cash flow.

Aside from our solid financial results, we have multiple operational and commercial successes that we.

We expect will drive earnings growth in 2024 and beyond.

In the northeast behind our wholly owned Utica system, we commissioned a previously announced compression projects, resulting in an incremental compression fee beginning in first quarter 2024 also in the northeast behind our Ohio gathering joint venture, we executed a new 15 year gathering agreement, which dedicated over 25000 acres to the system with a producer located.

In the condensate window of the basin.

That producer is currently running a one rig program and we expect to turn eight wells online in 2024, and they have indicated another 12 wells to be drilled and completed in 2025.

We also have scale, you need 10 year take or pay contract with a large independent producer behind our <unk> pipeline and the new contract woken at double lead to a 300 million a day processing complex that is currently under construction and will position us to capture incremental volumes as that plant is expanding in the coming years.

We are making progress with other shippers to secure additional take or pay contracts and we believe that the fundamentals in the Delaware basin are really starting to stage for what we expect to be a very productive year and commercialize <unk>.

I also in the DJ we've been very focused on integrating and optimizing the DJ Basin acquisition, we completed a number of debottlenecking projects that will allow us to more efficiently utilize the systems, which we believe will drive between five and $10 million in optimization value.

Starting in 2024 and beyond.

2023 was certainly a very busy and productive year for summit and our employees and we expect that those activities executed in 2023 to continue to drive growth into 2024.

Earlier. This morning, we announced full year 2024, adjusted EBITDA guidance of 260 to 300 million, which at the midpoint represents approximately 5% year over year growth.

This growth is driven by 170 to 230, well connects and we expect to connect to the systems in 2024.

I'll be expected well connects in 'twenty for approximately 15% our dry gas oriented wells approximately 35%, our liquids rich gas oriented wells and approximately 50% our crude oil oriented wells, which we feel is a good mix of commodity exposure, especially given the softness we are currently seeing in natural gas strip pricing.

Similar to previous years, our guidance range incorporates real time feedback, we're receiving from our customers regarding their development plans and we are tracking right to completion crews to ensure well connects remain on track in 2024.

Just as a refresher to our risking the guidance methodology.

Producers hit their current turn in line dates and production targets, we would expect to be at the high end of our adjusted EBITDA guidance range of 24.

Low end of the range reflects approximately 15% reduction in planned well connects and we have further ramp the timing of wells that are slated to come online in the second quarter and beyond.

We will continue to keep an eye on activity levels in and around our system and will provide updates throughout the year.

Our 2020 forward capital guidance ranges from $30 million to $40 million this year, which includes maintenance capital.

Which was primarily related to well connects in the Rockies in the northeast segment.

This level of capital and the resulting adjusted EBITDA expected in 2024 goes to show the amount of operating leverage free cash flow generations. These assets are capable of producing.

And with that I'll hand, the call over to bill to provide some additional details on our financial results in 2014 guidance.

Thanks Heath and good morning, everyone. As Heath mentioned, we had a great year and with the business trending as we expected and our.

We're excited about how 2024 shaping up I'll start by discussing our financial performance, followed by providing a bit more color on our 2020 for guidance.

Summit reported fourth quarter net loss of $15 1 million adjusted EBITDA of $75 million, resulting in full year 2023, adjusted EBITDA of $267 million.

Capital expenditures totaled $19 2 million for the quarter and $69 million for the full year 2023, which as a reminder included approximately $15 million of one time integration capital related to our DJ Basin based on acquisitions, and recently Commission compressor station expansion as EMEA.

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With respect to ask Mlp's balance sheet, we had $313 million outstanding under our $400 million ABL facility and our available borrowing capacity at the end of the fourth quarter totaled approximately 83 million, which included $4 $3 million of Lcs.

Now turning to the segments.

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 162 Bcf per day during the quarter inclusive of 826 million cubic feet, a day of <unk> OTC volumes and segment in <unk>.

Adjusted EBITDA totaled $28 4 million an increase of <unk>.

$7 million from the third quarter of 'twenty three.

The variance was largely due to higher volume throughput on our wholly owned SMU system.

From three new wells turned in line during the quarter and a full quarter contribution of the 14 wells turned in line in the third quarter. This was partially offset by natural production declines behind our OTC joint venture.

There are currently three rigs running behind our systems, one behind our wholly owned SMU system and more than 35 docks behind the OTC SMU and mountaineer system.

The Rockies segment, which is inclusive of our DJ and Williston Basin systems generated adjusted EBITDA of $22 4 million, which was down by $1 1 million from third quarter, largely due to a four 7% decline in liquids volume from natural production declines and lower commodity prices.

Impacting our PLP contracts from the DJ Basin.

This was partially offset by a seven 7% increase in natural gas volumes and approximately $1 million of lower operating expenses.

We estimate lower realized commodity prices negatively impacted gross margin by approximately $2 million during the quarter.

Liquids volumes averaged 81000 barrels per day, a decrease of 4000 barrels a day relative to the third quarter, primarily due to natural production declines partially offset by five new wells connected the system during the quarter.

Natural gas volumes averaged 126 million cubic feet a day, an increase of 9 million cubic feet per day relative to the third quarter, primarily due to wells connected during the second quarter, reaching peak production and 37, new wells connected to the system during the quarter that should reach peak production in the second quarter.

2024.

There is currently one rig running behind our systems and more than 80 docs, which represents the majority of the wild connections we are expecting in 2024.

The Permian Basin segment, which includes our 70% interest in the double E pipeline reported adjusted EBITDA of $8 million, an increase of approximately $2 million relative to the third quarter due primarily to contractual ramp ups and take or pay volume.

985 million cubic feet per day.

Volume throughput on double we averaged 386 million cubic feet per day, representing an increase of 18% relative to the third quarter.

There continues to be approximately 100 rigs running at <unk>, and Lea counties and announced processing plant expansions in Delaware basin, giving us confidence in the fundamental long term outlook of the pipe.

The <unk> segment reported adjusted EBITDA of $16 1 million up 0.8 million relative to third quarter due primarily to 21, new well connects.

The system during the quarter driving driving volume throughput 317 million cubic feet per day during the quarter.

The Barnett segment reported adjusted EBITDA of $5 8 million a decrease of <unk> 3 million relative to the third quarter, primarily due to an increase in operating expenses, partially offset by an increase in volume throughput from six new wells connected to the system during the quarter.

There is currently one rig running in 24 docks behind the system.

And as we've discussed previously our customer continues to keep approximately 20 million a day of production shut in due to the low natural gas prices and we estimate these shut ins negatively impacted adjusted EBITDA by approximately $1 3 million during the quarter.

I'd like to now focus on our 2020 for guidance and to reiterate his comments the midpoint of our guidance range risk the timing of well connections relative to what customers have provided the LOE and risk all of that even further and the high end assumes customers hit their timing targets.

We currently have five rigs.

Behind the system and more than 140, docs, which represents approximately 70% of the expected well connections at the midpoint of the range.

And as Keith already mentioned approximately 85% of those wells are from crude oil oriented.

And liquids rich gas oriented areas, which we view as favorable given the supportive crude oil strip.

Further to that of the dry gas oriented wells approximately two thirds of those wells are expected to be turned in line in the Barnett from a customer who has continued to run a rig and develop wells throughout 2023, including four new wells that have already been brought online in the first quarter of 'twenty four.

We believe this customer is less sensitive to natural gas prices given other infrastructure they have in the area.

In the northeast we are currently expecting 55% to 75, well connects in 2024, which will keep volumes and adjusted EBITDA relatively flat from 2023.

At the midpoint of our guidance range and as Heath mentioned, we did execute a new agreement with the second largest natural gas producer in Ohio behind our OTC joint venture and we expect them to develop a handful of wells this year with more to follow in 'twenty five.

In the Rockies region. We are currently expecting a 100 to 130 well connects in 2023 with 80 to 100 coming from the DJ and the remainder in the Williston.

This level of activity will drive volume throughput growth in gas volumes and a modest volume decline in liquids throughput. We believe the slowdown in activity in the Williston is due primarily to a third party gas gathering constraints in the basin that should be alleviated towards the latter half of the year and going forward.

We would expect activity levels to be more in line with what we experienced in 2023.

We also arent terribly surprised to see some activity delays given some of the upstream M&A activity that occurred in mid to late 2023 up in the Williston.

Quickly on the Piceance, we are expecting no new well connects in 2024, which will result in a modest decline in volume and EBITDA compared to 2023.

Now to the Barnett, we are expecting 15% to 25 wells in 2024, which we expect will result in approximately 15% volume throughput growth relative to 2023.

There is currently one rig running in 24 docks behind the system. Additionally, we have already turned in line four wells in the first quarter with more being drilled and completed as we speak as I mentioned earlier. We currently estimate that there is 20 million a day of production shut in behind the system that we are not expecting to turn back in line in 2020.

For in our current guidance is reflective of that at the midpoint and low end of the range.

Shifting to the Permian, we expect the first volume from our recently executed contract during the second quarter of 2004, and we expect that contract to step up to its 40 million a day take or pay commitment during the first half of 2025 the.

The year over year expected EBITDA growth is primarily related to contractual step ups in long term take or pay contracts.

Finally, I'll spend some time discussing capex and the balance sheet, we are expecting to spend $20 million to $25 million in growth Capex for 2024, and $10 million to $15 million of maintenance Capex. The majority of the growth Capex for 'twenty four will be spent in the Rockies region, where we have a number of pad can ask given.

The amount of well connections expected for the year.

And with $260 million to $300 million of expected adjusted EBITDA and $30 million to $40 million of total capital.

We expect significant free cash flow generation and debt pay down throughout the course of the year.

Based on the midpoint of our guidance range, we expect to generate approximately 90% to $95 million of free cash flow available to pay down debt.

And with that I'll turn the call back over to Heath for closing remarks.

Great Alright, Thanks Bill.

As discussed on the call today, we are certainly pleased with the progress that we made in 2023 and really are excited about the outlook and opportunity set for summit in 2024 and beyond.

We're extremely focused on closing out our strategic alternatives review I will continue to execute and optimize our base business.

We look forward to providing further updates on our strategic review here.

Here soon and we believe that we will obviously continue to provide updates on the on base business throughout the year.

With that operator, I'd like to open up the call for questions. Thank.

Thank you so much and for our telephone audience Crestar, one one to get in the queue and wait for your name to be announced.

To remove your question simply press Star one again.

My mom and why I compile the Q&A.

Again that is star one one to get into Q1 moment for our first question. Please.

And it comes from the line of Gregg Brody with Bank of America. Please proceed.

Good morning, and as always thanks for the comprehensive.

Guidance and update.

Just a couple of comments.

The strategic review you should expect something near term is there could be more specific.

In terms of a timeline.

Yeah, Hey, good morning, Greg This is heath.

No look I think we said what we can say at this point I think it's been a very robust process I think we are.

Entering into advanced stages.

And starting to narrow in on the alternatives that we think are going to maximize value.

So I think thats really about all we can say now again, no definitive timeline, but it does feel like that.

We'll have something here.

Some further direction and guidance here fairly soon.

And those.

As you said focusing on what you can do it.

Your commentary implies a sale is no longer part of the strategic review.

Okay.

They maintain the data for our implant. So I was just I was just looking at the press release, maybe I was painting focus too much on the focus.

<unk> focus on asset sales.

Joint venture type activities.

Aggregate level transactions.

What we said in the in the releases.

But the sale is still a possibility sure.

Sure Okay.

And just on the Permian obviously.

Can you tell us about the contract and what that means for this year could you talk a little bit more about the expansion opportunity there.

You mentioned it in your in your press release some comments.

<unk> tried to quantify how that plays out yeah. You bet. So look I mean, we've been kind of calling this for probably the past.

Year or two that we see that ramp up in production activity, particularly in Mexico.

Broadly the Delaware basin, we watched all the other existing infrastructure kind of fill up we started to see volumes increase on the double E pipeline.

And this is evidenced by this recent one that we announced it's not a huge contract 40 million a day.

But its 10 year take or pay and reportedly a can access to a new 300 million a day complex with an investment grade shippers. So I think there'll be more to come on that but in addition of that.

And around the new Mexico area, we're seeing.

Any increase in not just activity levels around the double E pipeline, but the realization that the current residue gas takeaway situations getting constrained.

From our view, we see a lot of near term opportunities here.

Around our existing footprint that we can connect new plants.

When you deliver the residue gas Oahu, so pretty ripe environment, we think in 2024 for us to continue to gain additional contracts.

That theres about three bcf of processing plant expansions.

Some of the recent discussions with potential customers.

Thank you for the time guys.

I appreciate it.

Thank you.

And with that ladies and gentlemen.

Close our Q&A and conclude our conference call today. Thank you for participating you may now disconnect.

Okay.

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Yeah.