Q4 2024 Summit Midstream Corp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the Summit Midstream Corporation 4th quarter, 2024, Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
Speaker Change: I would like now to turn the conference over to Randall Burton. Please go ahead.
Randall Burton: Thanks operator and good morning everyone. If you don't already have a copy of our earnings release please visit our website at www.SummitMidstream.com where you'll find it on the homepage, events and presentations, section of quarterly results section.
Randall Burton: With me today to discuss our fourth quarter of 2024 financial and operating results, as he's Denny Key, our President, Chief Executive Officer and Chairman, Bill Mault, our Chief Financial Officer, along with other members of our Senior Management Team.
Randall Burton: Before we start, I'd like to remind you that our discussion today may contain forward looking statements. These statements may include that 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.
Randall Burton: 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.
Randall Burton: Please see S&C's quarterly report on Form 10Q, the quarterly period and its September 30, 2024, which the company filed with the SEC on November 12, 2024.
Randall Burton: Our 2024 Annual Report on Form 10K, which we filed soon, as well as our other SEC DC filing for a listing of factors that could cause actual results to defer materially from expected results.
Randall Burton: Please also note that on this call we use the terms EBIDA, Adjust the EBIDA, Distributable Cash Flow and Free Cash Flow. These are non-GAAP financial measures and we have provided reconciliation to the most directly comparable GAAP measures in our most recent earnings release.
And with that, I'll turn the call over to Heath.
Heath Denneke: Thanks, Randall, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 24 results.
Speaker Change: Summit had a very active and transformational year in 24. As we entered the year, we were midway through a very thorough strategic alternative review to determine the best path forward to maximize unit holder value.
Speaker Change: After careful consideration of the alternatives, we elected to pursue a series of transactions and a corporate strategy that we believe would deliver significant value for our unit hoards in 2024 and beyond.
Speaker Change: The first step was the decision to divest the North East segment for 700 million in total cash proceeds which immediately reduced leverage from 5.4 times to 3.9 times and drove an increase in our unit price from around $17 a share unit at the beginning of the year to nearly $30 a unit shortly after announcing the transaction.
Speaker Change: Following that in July of 24, we successfully refinanced the balance sheet with an upsized credit facility and new second-name lean notes. This significantly increased our financial flexibility, it reduced our interest expense, and extended our nearest maturity out to 2029.
Speaker Change: Then in August , with a sport from our unit holders, we simplified our corporate structure by converting from a master limited partnership to a C-Corp, which brought in our investor base and significantly improved our overall trading liquidity.
Speaker Change: Following the series of transactions, Summit emerged in the third quarter of 2024 with a strong balance sheet, a simplified corporate structure that made our equity easier to own and with ample liquidity and a higher valued equity currency to pursue our corporate strategy to rebuild scale through value and credit accretive transactions.
Speaker Change: Then, during the fourth quarter, we executed on that corporate strategy by signing and closing the value and credit accretive acquisition of Pollock, Midstream and the Arkoma Basin.
Speaker Change: We financed the tall oak acquisition through a combination of cash and stock, which not only materially increased our size and scale, but importantly increased summit exposure to natural gas-oriented basins that are strategically positioned to ramp up production in coming years to feed the high growth markets and LNG exports in the Gulf Coast region.
Speaker Change: The execution of our corporate plans and strategy in 24 resulted in significant value creation for our shareholders, if our share price more than doubled by the end of the year.
Speaker Change: While we're obviously pleased with our achievements throughout the year and the resulting performance in our share price, we believe there's a lot more value creation ahead as we maintain our financial discipline and continue to execute on our corporate strategy in the coming years.
Speaker Change: Our momentum has continued to build as we enter into 2025. In January , we close on a $250 million add-on to the existing second-line notes, turning out of our revolver barons and replenishing our liquidity to continue executing on our consolidation strategy.
Speaker Change: In February , with the ongoing progress we made on delivering the balance sheet, we announced plans to reinstate the cash dividend on the corporate series A preferred beginning on March 15th to 25, which is a necessary step towards resuming a common dividend in the future.
Speaker Change: And yesterday we were pleased to announce another value of creative and strategic bolt-on acquisition of Moonrise Midstream in the DJ Basin, which further expands some of its gathering and processing capacity in the area at a crucial time as volumes behind our existing DJ assets continue to grow.
Speaker Change: We purchased the system at approximately five times 2024 EBITDA multiple and financed a 90 million transaction utilizing roughly a turn of equity in four turns of cash.
Speaker Change: Moonrise adds 65-millenn a day of processing capacity to the system, approximately half a inch is currently available to support continued growth behind our DJ super system in the coming years.
Speaker Change: The Moonrise system is already connected with our existing DJ assets, the multiple pipe interconnects, and we expect to extract significant operational and commercial synergies in 25 and beyond with a combined operating footprint.
Speaker Change: We remain very excited about the growth trajectory of some of its existing DJ based in positions in our ability to capture additional value and creative opportunities in the year ahead.
Speaker Change: Living on to our fourth quarter in 2024, our financial results were in line with management expectations. Summit delivered fourth quarter adjusted EBITDA of 46.2 million and full year 24 adjusted EBITDA of 204.6 million.
Speaker Change: During the year, we generated more than 85 million of distributable cash flow.
Speaker Change: We experienced a consistent level of well-connected throughout the year with 156 new wells connected in total.
Speaker Change: and the Barnett, which is now included in our mid-con segment, we connected 27 new wells to the system, exceeding our original expectations, which led to a roughly 80% volumetric growth from Q4 of 23 to Q4 of 24.
Speaker Change: We're expecting similar level of development in 25 in the Barnett and with an active rig running behind our coma system, we're set up for another strong year of growth in the Midcon region.
Speaker Change: In the Rockies region, we connected 129 new wells to the system with 37 wells in the Wilson and 92 wells in the DJ.
Speaker Change: This level of activity led to 5% volume growth in the DJ Basin from Q4 of 23 to Q4 of 24.
Speaker Change: As we mentioned in the DJ operational update yesterday, we are nearing full utilization of capacity in certain areas of our footprint, which has led to some of our customers electing to moderate or defer development activity behind our system in 25.
Speaker Change: However, with the acquisition of Moonrise, we do expect to resolve those capacity constraints and expect to see activity levels continue to increase behind our DJ systems in 26 and beyond.
Speaker Change: And lastly, we saw tremendous volume throughput growth on doubly. Increasing volume by roughly 60% from the fourth quarter of 23 to the fourth quarter of 24.
Speaker Change: We continue to remain confident in our ability to fill up the existing and contracted capacity with long-term take-away contracts.
Speaker Change: So, 2024 was a solid year for Summit operationally and with the supportive commodity price environment we're looking forward to another strong year ahead.
Speaker Change: I'm now briefly hit on our 25 plan and guidance range and then we'll turn it over to the bill to discuss more details in his section.
Bill Mault: We announce four-year 25-adjusted event odd guidance of 245 million to 280 million which is inclusive of our recent moonrise acquisition.
Bill Mault: We expect to connect 125 to 185 wells to the system in 2025.
Bill Mault: Similar to previous years, our guidance range incorporates real-time feedback we are receiving from our customers regarding their development plans, and we are tracking risks and completion careers and permits to ensure that well-connected remain on track in 2025.
Bill Mault: So just as we're fresher to our risking and guidance methodology, if our producers hit their current turning line day and production targets, we expect to be at the high end of our Adjusted EBITDAG guidance range in 25.
Bill Mault: The low end of our range reflects roughly a 30% reduction in plan well-connected activity in 25, mainly due to risking the time in the well that are slated to come online in the third and fourth quarters and delaying those in the 26.
Bill Mault: We will continue to keep an eye on activity levels in and around our system, and we'll provide updates throughout the year.
Bill Mault: Our 2025 Capital Guidance ranges from 55 to 75 million this year, which includes 15 to 20 million
Bill Mault: Our capital budget in 25 is primarily related to well-connects in the Rockies and Diccon segments and integration capital related to our recently acquired Arcoma and DJ assets.
Bill Mault: Further, I would like to characterize it roughly 20 million of our capital budget in 25 is that one time or non-recurring expense.
Bill Mault: So, as you can think about the business going forward, capital requirements will be closer to the 45 to $55 million dollar range to support this level of EBITDA in 2026 and beyond.
Bill Mault: and with that I'd like to hand the call over to Bill to provide some additional details on our financial results in 25 guidance.
Bill Mault: Thanks Ethan. Good morning everyone. As Heath mentioned, we had a great year and are extremely excited about how 2025 is shaping up. I'll start by discussing our financial performance followed by providing a bit more color on 2025 guidance.
Bill Mault: Summit reported fourth quarter net loss of 24.8 million, adjusted EBITDA of 46.2 million, resulting in full year, 2024, adjusted EBITDA of 204.6 million.
Bill Mault: which includes 30.6 million from the Northeast segment that was invested in the first half of the year.
Bill Mault: Gabbo expenditures totaled 15.8 million for the quarter and 53.6 million for the full year of 2024.
Bill Mault: With respect to SMC's balance sheet and pro forma for the add-on to the secondly notes we executed in January we had net debt of approximately $8.52 million
Bill Mault: are available barring capacity at the end of the fourth quarter, total approximately 444 million which included 1 million of on-drawn letters of credit and now on to the
Bill Mault: The Rocky segment, which is inclusive of our DJ and Wilson Basin systems, generated a Jeff Vitav 23.2 million, a decrease of 1.6 million from third quarter, largely due to a 3% decline in liquids volumes.
Bill Mault: from natural production declined and lower water sales partially offset by a 2.3 percent increase in natural gas volumes.
Bill Mault: Liquid's volumes averaged 68,000 barrels a day, a decrease of 2,000 barrels a day relative to the third quarter, due primarily to natural production declines, partially offset by 17 new wells connected to the system during the quarter.
Bill Mault: However, those 17 wells were connected toward the end of the fourth quarter, so they had little to offset natural production declines during the quarter, but will begin contributing in the first quarter of 2025 2025
Bill Mault: Natural gas volumes averaged 131 million cubic feet per day, an increase of 3 million cubic feet per day relative to the third quarter, primarily due to well-connects during the second and third quarter reaching peak production in the fourth quarter.
Bill Mault: There were six new wells connected to the system behind our herferd plant from a customer who recently acquired the acreage.
Bill Mault: This new 6-well pad was their first pad in the region and we expect them to continue developing well in the area at the beginning of the late 2025.
Bill Mault: The Rocky segment currently has three rich running behind the systems and more than 90 docks which represents the majority of the wealth connections we are expecting in 2025.
Bill Mault: The Permian Basin Segment, which includes our 70% interest in the doubly pipeline, reported an adjusted EBITDA of $7.8 million, a decrease of $0.7 million relative to the third quarter, due primarily to lower volume throughput on the pipe.
Bill Mault: Long throughput on doubly averaged 613 million cubic feet per day during 4th quarter [inaudible]
Bill Mault: The P.O.P. segment reported a jocity beta of 11.8 million, a decrease of 1 million relative to the third quarter due primarily to a 2.5% decline in volume throughput and slight increase in operating expenses.
Bill Mault: The mid-term segment reported adjusted EBITDA of $12.8 million, an increase of $5.6 million relative to the third quarter.
Bill Mault: Primarily due to one month contribution from the Arcoma assets that we closed on December of 2nd and a 29% increase in volume throughput behind the system.
Heath Denneke: As he mentioned, we connected 27 wells to the system in the Barnette throughout the year that has led to some pretty significant volume growth.
Heath Denneke: Additionally, as of December 2024, the customer who started the year was shutting production behind that system has started reflowing all of their shut-in volume at this time.
Heath Denneke: With a supportive natural gas price environment, we would expect to see that volume remain online going forward.
Heath Denneke: There are currently two rigs running behind the system, and subsequent to UN, the main customer in the Arcoma, who continues to run a rig, has turned in line six wells that are producing approximately 50 million cubic feet a day.
which are performing above our internal expectations in the aggregate.
I'd now like to focus on our 2025 guidance.
Heath Denneke: and to reiterate his comments, the midpoint of our guidance range risked the timing of well-connections relative to what customers have provided, the low-end risks all that even further, and the high-end assumes customers hit their timing targets.
Heath Denneke: We currently have five raids behind the system and more than a hundred docks which represent sixty-five of the expected well connections at the midpoint of the
Heath Denneke: Approximately 75% of the 2025 well connections are from crude oil oriented areas and 25 from natural gas oriented areas.
Heath Denneke: Crewton Natural Gas Prices remains supportive of continued development across our entire system.
Heath Denneke: In the Rockies, we are currently expecting 95 to 140 well-connected and 2025 with approximately 80 to 100 coming from the DJ and the remainder in the Wilson.
Heath Denneke: This level of activity will drive volume throughput growth in gas volumes and a relatively flat liquid sparring throughput.
Heath Denneke: Nearly half of the wells in the willston this year are expected towards the end of the year, so we'll have minimal contribution to this year's volumes and earnings.
Heath Denneke: Now to the midcom, we are expecting 30 to 45 wells in 2025, which with the addition of the Arkoma assets will lead to significant volume growth year-over-year.
Heath Denneke: We currently have one rig running in the Barnett and one rig running in the Arkoma, and as I already mentioned, we have already connected 6 miles in the Arkoma in 2025, so we're off to a great start.
Heath Denneke: With a supportive natural gas price environment as we are currently seeing, we believe producers in this region will be incentivized to accelerate development plans if possible.
Heath Denneke: Shifting to the Permian, year-over-year expected EBITDA growth is primarily related to contractual step-ups in long-term take-or-take contracts, executing the first half of 2024 that will take a fact through the first half of 2025.
Heath Denneke: Quickly on the peont, we are expecting no new well-connected in 2025, which will result in decline in volume in EBITDA compared to 2024.
Heath Denneke: Finally, I'll spend some time discussing CapEx and the balance sheet.
Heath Denneke: We're expecting to spend 50 to 55 million in growth catbacks for 2025 and 15 to 20 million of maintenance catbacks.
Heath Denneke: The majority of the growth cap-backs for 2025 will be spent in the Rockies and Arcoma region where we have a number of pack connects giving the amount of well connections expected for the year and have some integration capital in the Arcoma that will enable us to realize operating synergies in the future.
Heath Denneke: With 245 to 280 million of expected adjusted EBITDA, and 65 to 75 million of total capital expenditures, we expect significant free cash flow generation and debt paid on throughout the course of the year.
Heath Denneke: Based on the midpoint of our guidance range, we expect to generate over a hundred million of free cash flow available to pay down debt and trend toward our three-and-a-half times leverage target.
Heath Denneke: and with that, I'll turn the call back over to Heath for closing remarks.
Heath Denneke: Thanks Bill. Look, as discussed on the call today, we're very pleased with the progress we've made in 2024 and are excited about the outlook and the opportunity set for Summit to continue to draw value for our shareholders in 25 and beyond.
Heath Denneke: We're continuing to see strong operating momentum and high free cash flow generating growth from our existing portfolio of assets, and we believe we are in an opportunity rich environment to continue to scale up the business through value and credit to creative acquisitions in the future.
Heath Denneke: We're excited about the opportunity to further expand our investor base as we continue to execute on our base business plans and our corporate strategy.
Bill Mault: As Bill mentioned in his remarks, at the midpoint of our guidance range, we expected to generate more than 100 million of leverage-free cash flow after growth in May this capital in 2025. We plan to utilize that to continue to de-lever the balance sheet towards our three-and-a-half times long-term leverage target.
Bill Mault: We hope that our current and prospective investors are taking note of the sizeable amount of distributable free cash flow that our business model generates, as well as our ability to consider a sustainable return of capital program as a mechanism to further enhance your hotel returns in the coming years as we achieve our targeted leverage profile.
Bill Mault: And with that operator, I'd like to open up the call for questions.
Speaker Change: At this time, I show no questions in the queue. This does conclude today's conference call. Thank you for participating. You may now disconnect.
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