Q1 2024 Summit Midstream Partners LP Earnings Call
Good day and thank you for standing by welcome to the first quarter Summit Midstream Partners LP earnings Conference call. At this time, all participants are in listen only mode.
The speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you didn't hear an automated message you're revising your hand is raised.
To withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today rental burn director Investor Relations. Please go ahead.
Rental Burn: 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 first quarter of 2024 financial and operating results is Heath Deneke, Our President Chief Executive Officer, and Chairman Bill <unk>, our chief financial.
Officers, along with other members of our senior management team.
Before we start I'd like to remind you that our discussion today may contain forward looking statements. These statements may include but are not limited to our estimates of future volumes operating expenses and capital expenditures. They may also include statements concerning anticipated cash flow liquidity business strategy and other plans and objectives for future operations.
Although we believe that the expectations reflected in such forward looking statements are reasonable we can provide no assurance that such expectations will prove to be correct. Please see our 2023 annual report on Form 10-K, which was filed with the SEC on March 15th 2024, 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.
Rental Burn: I'll turn the call over to Heath.
Heath: Thanks, Randall and good morning, everyone. Thank you for joining us today to discuss our first quarter 2024 results.
Heath: We had a very busy first quarter really on really on all fronts, starting on the strategic perspective, we successfully wrapped up our strategic alternatives review announced the Divesture of our Utica position and as we announced this morning. We've also closed on the sale of our mountaineer gathering system in West Virginia.
In the aggregate, we sold our northeast segment for approximately $700 million and we're now shifting our focus on several organic and bolt on acquisition opportunities in and around our Rockies and Permian segments.
With our pro forma leverage of around three nine times, a completely undrawn $400 million revolver, and a little over $350 million of pro forma unrestricted cash, we're very well positioned to pursue those opportunities. While we further delever the balance sheet and continue to progress our or to make progress.
Towards achieving our long term leverage target of sub three five times.
Heath: Commercial discussions and that we continue to remain extremely productive and earlier. This week. We concluded a successful open season that resulted in the award of 75, new on a day of incremental 10 year take or pay commitments with a subsidiary of Matador resources.
Our commitment was really there to support their 200 million a day expansion of the Marlin processing plant in Mexico.
Heath: At Marlin plant complex is already connected to the <unk> pipeline and their plant expansion is scheduled to come online in the first half of 2025.
In addition to the new volume commitment the amended and restated Matador firm service agreement provided for an approximately two and a half year extension of their existing agreements.
Now our.
Extended to a 10 year term effective may one 2024.
Additionally, as part of the open season, we received 150 million a day of non binding 10 year take or pay bids from other third parties that are looking for new plant connections in 2025.
Also had dialogue with multiple parties that have recently announced plant expansions in along the <unk> corridor.
Furthermore, we found a new Max rate Interruptible agreement in new Mexico for up to 150 million a day of incremental volumes.
Both of these contracts both Matador contract in this IP contract work and processing plants are already connected to our system. So therefore, they're really extremely value accretive to double es theres really.
Not much or any capital associated with these connections.
We're very excited to see the increasing level of demand for residue gas takeaway capacity out of the Delaware Basin materialize and we continue to believe that <unk> is uniquely positioned to meet both the near term and long term needs of the market.
Operationally, we had a great start to the year. Despite some severe weather primarily in the DJ Basin. We turned in line 71 wells during the first quarter, which pro forma for the Utica and Marcellus transaction represents nearly half of the wells that were expected to be turned down turned in line for the full year 2024.
This level of activity exceeded our expectations for the quarter and should put us in a good position to continue to execute operationally and achieve our revised pro forma adjusted EBITDA guidance range of $170 million to $200 million.
So in summary, we're off to a great start for the year about strategically operationally and financially and we look forward to maintaining that momentum through the rest of the year.
So with that I'll hand, the call over to be able to provide some additional details on our financial results.
Thanks Heath and good morning, everyone Summit reported first quarter net income of $132 9 million adjusted EBITDA of $70 1 million and capital expenditures of $16 4 million with the majority of the Capex spend and the Rockies associated with pad connections.
With respect to our small piece balance sheet, we had net debt of approximately 700 million with an undrawn $400 million ABL credit facility.
Heath: Our available borrowing capacity at the end of the first quarter totaled $384 million, which includes $4 3 million of letters of credit and $12 million of commitment reserve for the upcoming 2025 unsecured notes maturity.
Now turning to the segments in the Rockies segment, which is inclusive of our DJ and Williston Basin systems, we generated adjusted EBITDA of 22 9 million an increase of half a million dollars from the fourth quarter largely due to increased project margin from our percentage of proceeds contracts.
From higher commodity prices, which was partially offset by lower liquids and natural gas volumes.
Liquid volumes averaged 74000 barrels a day a decrease of 7000 barrels a day relative to the fourth quarter due primarily to natural production declines.
Natural gas volumes averaged 124 million a day.
Heath: A decrease of 2 million a day relative to the fourth quarter, primarily due to extreme weather and operational downtime, we experienced in the DJ basin that negatively impacted volumes by approximately <unk> 9 million.
Cubic feet per day during the quarter.
We connected 39 wells in the DJ and 18 wells in the Williston during the quarter, which we expect will drive liquids and natural gas volume growth in the second quarter.
The Rockies segment currently have two rigs running on our systems and more than 50 docs.
The Permian Basin segment, which includes our 70% interest in the <unk> pipeline reported adjusted EBITDA of $7 3 million a decrease of <unk> 7 million relative to the fourth quarter due primarily to $1 million of other revenue recognized in the fourth quarter.
Throughput on <unk> averaged 467 million cubic feet per day, representing an increase of 21% relative to the fourth quarter.
As Heath already mentioned with the significant momentum in contracting the remaining capacity we remain extremely excited about the long term prospects for <unk>.
The Piceance segment reported adjusted EBITDA of $15 2 million down <unk> 9 million relative to fourth quarter due primarily to natural production declines and no new well connections to our system during the quarter volumes.
Volume throughput averaged 312 million cubic feet a day during the quarter of 5 million cubic feet, a day decline relative to the fourth quarter.
The Barnett segment reported adjusted EBITDA of $5 9 million, a decrease of <unk> 7 million relative to fourth quarter, primarily due to lower volume throughput, partially offset by four new wells connected to the system.
There is currently one rig running in 24 docks behind our system and our customer continues to keep approximately 30 million a day of production shut in due to low natural gas prices.
We estimate that the 30 million cubic feet a day of shut ins negatively impacted adjusted EBITDA by $2 million during the quarter.
Briefly on the northeast the segment average one six Bcf per day during the quarter inclusive of 849 million cubic feet. A day of eight eight so do you see volumes and segment adjusted EBITDA totaled $29 million, an increase of <unk> 6 million relative to the fourth quarter.
During the quarter, we connected three wells beyond the SMU system and seven wells behind OTC.
As we announced today as it may 1st with the sale of the Mountaineer system Antero Midstream, we have successfully exited the northeast segment with $700 million in aggregate asset sale proceeds.
And with that I'll turn the call back over to Heath for closing remarks.
Thanks Bill.
As I said earlier very pleased with our first quarter performance activity levels behind our system and certainly the progress great progress that we've made on the balance sheet.
We are in an opportunity rich environment, and we look forward to continue to build on our progress and momentum throughout the year.
Before opening up the call for questions I wanted to remind everyone of the upcoming annual meeting of limited partners, which will be held virtually on may nine 2024 at <unk> PM Central time.
All unit holders should have received proxy materials associated with meeting.
Importing items on the agenda. They are important to the partnership and we certainly encourage everyone to vote.
Additionally, we are making good progress in preparing for the previously announced C Corp conversion, including a subsequent proxy and special meeting, where we will intend to seek approval for summit to unit holders to convert the partnership to a C Corp.
While the exact timing is it depends on a number of factors. We are on track to file the C Corp, proxy statement and provide unitholders with the additional information about the rationale and the benefits of the conversion as early as the second quarter and currently expect to hold a special meeting sometime during the third quarter of the year.
Continue to strongly believe that converting to a C corp positions the company to maximize value for our unit holders and we will certainly provide significant long term tax savings for current and future shareholders going forward.
With that I would like to thank you for your time and continued support and operator. Please open the call for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced towards Gyro question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Gregg Brody of Bank of America. Your line is now open.
Good morning, guys.
Congrats on.
All of the transactions.
Thanks, Greg just just perspective.
Dziedzic review.
Included in this.
<unk> sold the northeast.
It sounds like you are focused on M&A in the Permian.
And in the Rockies you could talk about what the opportunity is there.
Is the conclusion of the strategic review.
I mean that the company is.
It's done pruning assets now and it's all about adding assets to have a little bit about that yes. Good questions.
I think the long and short evidence.
We think we are kind of done in terms of pruning assets.
Obviously nex.
They're at the right value I think.
You need to consider it but that's not kind of in the base plan.
You can see on the balance sheet, we've got.
Kind of three nine times Levered now we think.
And we got.
<unk> amount of liquidity with an undrawn revolver and close to what 350 plus of cash on the balance sheet. So that's more than enough liquidity, so really support.
M&A strategy around our Rockies and Permian segments.
Look I think we're target goal number one is to kind of maintain leverage and try to achieve our long term target of three and a half and but we do see quite a bit of opportunity set.
Heath: In and around both the Rockies and the Permian segment.
Do potential.
Potentially taking advantage of what we think is a good market for buyers right now.
Yeah, Greg I'll just add.
Add to.
As you think about <unk>.
We mentioned, we got the 150 million a day of kind of non binding proposals for additional client connections I think there's a really good organic growth strategy out at <unk> as well.
I think we can finance a lot of that with asset level debt.
But there may be some investment opportunities there and then as you think about.
We keep a pretty.
A pretty exhaustive list of high priority targets from a bolt on acquisition perspective, and I would tell you there.
All primarily highly synergistic to our.
Adjusting footprint.
And we see a number of opportunities.
In the Williston and to a greater extent in the Vijay.
Could you give us a sense of how big that opportunity set is yes.
Greg if we could get them all done.
Feel like we could we could double the size of <unk>, obviously, that's that's pretty ambitious.
Our strategy, but I would think about them rate ranging from as low as $15 million of EBITDA to as high as 50 to 60.
And as the and Thats.
There is how many type of opportunities are there out there I'd say there is.
Call it.
10, or so that we keep a close eye on Greg.
Got it.
And then just the asset sales over the last one.
You announced yesterday it looks like you sold that for about three five times is based on what I see antero as guidance out there.
Is there some other value accretion there.
We're not thinking about.
Yes, so Greg on that one.
If you do the math on our revised guidance.
Or right at 17, and a half at the midpoint.
Reduction in EBITDA, you got to remember, though drag there is about.
Almost $7 million of shortfall payments that expire.
And 25% and 26 behind that system. So if you think about it more in slide $10 million to $11 million of EBITDA flowing EBITDA.
I think that will help bridge kind of the perception on the value gap.
Speaker Change: Got it.
And as I as I think about it.
Use of cash you, obviously pointed out M&A.
How do you think about financing and capital structure to remind us are there any.
Yes.
Mandatory payments associated with that.
But we should be thinking about yes, hello into bondholders.
So.
The second lien Greg does have a 365 day reinvestment period provision.
It does have some expansions in certain circumstances.
Speaker Change: So that would kind of be your Bakken Greg.
When you would be required to make an asset sale offer.
Obviously, we pay down the revolver.
A big chunk of the revolver and you may have noticed in the release.
In summary Heath commentary.
We've got a tremendous amount of liquidity I think this is a balancing act Gregg So you know.
I think some additional debt paydown.
Be shocked if you saw us come out and maybe try to try to do some additional debt paydown and balance kind of the liquidity profile with continued debt repayment.
And what about just how you think about eventually refinance the capital structure, Yeah. Yeah look it's a great question.
We've always kind of said Q1, 'twenty five as kind of the back end date, obviously the market.
Is seems to be very open right now and we're seeing a lot of constructive prints.
The harvests deal that got done.
Interesting comp for us.
Speaker Change: But Greg as you know.
We need to kind of sort out and extension of our bank deal.
So I view it more along the lines of.
Speaker Change: That takes a little bit more time to get everything ironed out.
But it's safe to say that we're working on that real time and when we're in a position to.
Get that expansion done.
Evaluate the market at the time.
I think.
We're kind of in the window here between now and the end of year trying to get something done on the refi.
And just as you think about the revolver assumption are you anticipating any just obviously it.
Say, assuming you don't buy anything else.
Robert stays the same size.
Yeah.
I think we're we'll certainly try to upsize it a bit here, Greg I think.
I don't think youre going to see anything crazy, maybe 50 or $100 million.
Here are there I do think and as.
As we've discussed there really is a <unk>.
Sizeable opportunity here to continue to kind of regain scale within our footprint.
Speaker Change: And it's a balancing act between pre payable debt.
Bullet bond as well as having liquidity to continue to kind of.
Expand the business and take advantage of this opportunity set we see in front of us.
Speaker Change: So those are the things we're balancing that's what we're chatting with our banks about and potential new banks to join the Bank group.
And we will be kind of all part of that.
Decision, making as it relates to the size of any sort of bond deal and the like.
As we go out.
The market here later this year.
And then just turning to operations, obviously, some contract wins in the Permian.
How should we think about the incremental EBITDA associated with those.
Yes.
The ones that.
We announced both the interruptible agreement could start contributing this year.
The Matador contract would kind of step up next year I think it's just call it kind of somewhere late in the second quarter mid to late second quarter is when the incremental.
Takeaway capacity, what kind of step up.
And then again as we kind of highlighted we do see quite a few announced publicly announced expansions that are up and down the corridor.
Many of those are kind of late 'twenty five early 2026 in service dates so kind of we think we will see that.
Sizable step up in 'twenty, five and a lot of opportunity that we think could materially.
Speaker Change: Drive, our 26 and beyond EBITDA.
Yes, Greg.
Greg as you think about between EOG.
Speaker Change: Our contract that that ramps up to 40 million a day.
Speaker Change: You've got the new Matador at 75 million a day and then if you kind of exclude all of the other opportunities that we're working right now that'll get you. Another six 7 million Bucks of revenue growth once they're fully.
Fully ramped.
And then I would just point you to our Investor presentation, we kind of show you, where we think summit.
EBITDA and that the summit will be.
If you kind of fill up the free flow capacity of the pipe.
Speaker Change: No.
That will get you somewhere in the mid Forty's from EBITDA relative to $30 million today.
And then just the last one here I know you've talked about potentially bringing in.
The JV component here for definitely want to leverage is sort of a sort of a neutral transaction based on where things are your outlook today. When one can do you think we can possibly see that up yet.
Speaker Change: How we model it out Greg I'd tell you it's probably.
26 type timeframe right a lot of these contracts are ramping over the next 18 to 24 months.
So it's.
Economy, some of that in the rearview mirror would we be willing to maybe see some marginal uplift in and leverage if it was truly jess.
Contractual ramp issue and you knew that LTM EBITDA was going to kind of roll in.
So I would think about it.
Speaker Change: 26 ish timeframe that may be another opportunity drag to kind of go pop off capital market's deal as well, but I think thats, probably about right as it relates to the.
The contract ramp and the LTM EBITDA profile of <unk>, how we see it today.
Got it and just one clarification here I believe your coupon on the 2006 and stepped up by another 50 basis points as of April one.
They did correct that unfortunately, these asset sale proceeds care can circumvent that Greg but.
I mean, the second lien holder has got a nice win here with the major Delevering and stepped up in coupon.
And there's no way that's permanent.
Set up until you reach that.
Next year, if we catch up on the ACF next year theoretically could go down Greg.
As I mentioned I would suspect that.
We kind of clean all this off with a refi before we get to that point anyway.
Yes.
Thanks for the time guys. Appreciate it yes, thanks for the questions Greg. Thanks.
Thank you. This concludes our question and answer session. Thank you for your participation in today's conference. This concludes the program you may now disconnect.
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