Q2 2019 Earnings Call
Once again all parties. Please stand by the second quarter 2019 Summit Midstream Partners LP earnings Conference call will begin momentarily. Thank you.
Good morning, and welcome to the second quarter 29, keep summit Midstream Partners LP earnings Conference call.
My name's bread and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you can know star one just the other question.
Please note. This conference is being recorded and I will now turn it over to Blake Molly you may begin Sir.
Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release that was issued earlier. This morning. Please visit our website at summit midstream Dot com.
Where youll find it on the home page or in the news section.
With me today to discuss our second quarter of 2009, <unk> financial and operating results. The letter Malik our interim President and Chief Executive Officer.
Marc Stratton, 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 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 2018 annual report on Form 10-K , which was filed with the FCC on February 26, 2019, 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 term EBITDA adjusted EBITDA and distributable 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.
And with that I'll turn the call over to let our balance.
Thanks, Blake and good morning, everyone. Thanks for joining us on some its second quarter 2019 earnings call.
We hope Youve had an opportunity to review the news release, we issued a short time ago.
I would like to begin today's call with a perspective on our business performance during the second quarter.
Our adjusted EBITDA for the quarter totaled $68.6 million and distributable cash flow totaled $38.4 million.
Most Robin will review in detail the segment level quarterly performance, but relative to prior periods.
Our reported results were impacted by.
First quarter sale of our Tioga midstream system.
And approximately two weeks of downtime associated with commissioning, our new 60 million cubic feet a day processing plant in the DJ Basin, which came online in June .
Normalizing for these headwinds we estimate that our second quarter adjusted EBITDA would have been approximately $2 million higher or approximately $70.6 million second quarter distribution coverage was strong at 1.6 times.
Based on our quarterly distribution of 28.7 cents per unit, which will be paid on August 14 to unit holders of record as of August seven.
We continue to expect distribution coverage to expand significantly over the course of 2019 in line with adjusted EBITDA growth.
With fourth quarter 2019 coverage of approximately two times.
Before I hand, it over to Mark to review details of our financial results I'd like to highlight some catalysts and milestones in the second quarter. They have a key to the some story.
First in June we successfully commissioned our new 60 million cubic feet a day processing plant in the DJ Basin.
This new facility tripled our processing capacity in the basin and provides a much needed outlet for rapidly growing production. This rule part of northern well County.
It also paved the way for subsequent expansions, mainly a second 60 million cubic feet a day plant.
Which is on the go on board.
However.
We continue to closely evaluate the timing of construction for this plan.
And we will proceed with the plants construction only when we have the appropriate level of customer support.
Meanwhile, our new 60 million cubic feet, a day plant is running well and is generating attractive NGL recoveries for our customers.
We are currently averaging more than 30 million cubic feet, a day, which represents an increase of more than 50% from our second quarter DJ volumes and we expect continued volume growth over the balance of the year.
Importantly, the active commissioning the plant triggers a $600000 per month contract you will demand payment that will begin recognizing the third quarter of 2019, and this complements higher revenues associated with additional volume growth.
Second.
In our Utica shale segment, we continued to experience a shift and throughput mix toward higher margin volumes that originate from pad sites directly connected to the immune system.
In fact.
Late in the second quarter, our anchor customer turned four new wells in line Pantheris immune system.
These will together with an additional two wells.
Expected in the fourth quarter of 2019, we will facilitate higher patient volumes in the second half of 2019 and this activity will drive our segment adjusted EBITDA growth in the Utica.
Segment, adjusted EBITDA for our Utica shale assets was 7.2% higher than our first quarter results.
Reflecting increased activity behind our gathering system. We expect this trend to continue through the remainder of the year.
Our customers are currently operating one rig upstream of the new gathering system, and we expect a separate customer to mobilize another rig on our system in the fourth quarter of 2019.
This customer's schedule to drill five wells on the pad site located in close proximity to an existing assay new pad sites. We told you is two wells that averaged more than 60 million cubic feet a day the first half of 2018.
These five wells will represent a major growth catalysts for our Utica shale segment, and we will be excited to see the production results from these wells the first half of 2012.
And on June 27.
We announced the final investment decision on the double the pipeline project.
And that we had secured Exxon Mobil as a JV partner in the project.
We are excited about this marquee project and the strategic alliance with our new partner, who is the largest contiguous acreage holder in the northern Delaware Basin.
First a quick recap on the project.
Double Lee has a highly attractive economic profile with 10 year take or pay volume commitments from a number of different shippers, including our partners anchor shipper Axio energy for substantial majority of the pipelines 1.3 Bcf per day initial throughput capacity.
Summit, 70% share of the expected Capex for the project totals approximately $350 million and more than 90% of that capex.
Will occur in the years 2020 in 2021.
Concurrent with that by the summit amended its revolving credit facility to include a customary material project EBITDA adjustments for double lean, which will provide additional borrowing capacity during the construction of the project.
Second as it relates to details of the project we have a dedicated team comprised of talent from both summit and Exxon that we'll be focused on project execution.
I am pleased to share.
We are making progress.
The team has filed our section seven C. application with the FERC at the end of July .
We secured steel for pipe production at attractive rates and expect to begin taking receipt of that pipe in the first half of 2020.
Construction will commence upon receipt of broke approval.
Which will occur by the end of the third quarter of 2020 in the interim we continue to work diligently on areas such as right of way acquisition design and engineering.
We expect that construction of the roughly 130 miles of 36 inch and 42 inch pipeline will take approximately 12 months.
And we estimate that third quarter 2021 in service date.
Assuming timely receipt of required regulatory approvals.
I want to add that W. Represents a critical part of our strategy for achieving scale diversifying our operations downstream of the wellhead.
And becoming more integrated in our core focused areas.
Our partnership with Exxon, a thorough and diligent counterparty represents a strong sign of confidence and validation in the project and in some it overall.
I'll now hand, it over to our CFO , Marc Stratton to review our quarterly results.
And then we will wrap up with a few closing comments.
Thanks, Peter and good morning, everyone.
I'll begin by walking through the segments that comprise our core focus areas, starting with our Utica shale segment, the summit midstream Utica or some use system averaged 260 million cubic feet a day in the second quarter and segment adjusted EBITDA totaled $6.6 million, which was up 7.2% from the first quarter of 2019 as a result of four new wells in the first quarter 2019, and a favorable volume mix.
Second quarter volumes included 220 million cubic feet, a day of volume from pad sites directly connected to the SMB system compared to 205 million cubic feet a day in the first quarter.
This represents the second consecutive quarterly increase and pad level volumes and as an important trend to highlight that these volumes are generating a gathering fee that is approximately three times higher than the fee that we earn on volumes originating behind our TPL seven connector.
Our anchor customer connected four new wells at the end of the second quarter and as a result current flow rates from pad sites directly connected to the system are currently averaging in excess of 235 million cubic feet. Today. We also estimate that there was 23 million cubic feet a day of volume offline during the quarter associated with ongoing drilling and completion activity on pad sites with existing production.
We have a steady level of drilling activity on the system and we expect the annualized segment adjusted EBITDA for the second half of 2019 will be higher than what we generated in the first half of the year.
Turning to our Ohio gathering segment.
Gross volume throughput in the second quarter of 2019 averaged 713 million cubic feet, a day, which was relatively flat with the first quarter 2019.
We continue to see a steady level of drilling and completion activity in the segment.
With 13 wells turned in line in the second quarter, bringing the total to 35, new wells for the first half of the year with most of this activity occurring in the condensate window.
Our customers have an inventory of 32, Ducs and we have recently seen completion activity in the more prolific wet gas window, which we expect will generate more pronounced sequential quarterly growth in the second half of the year.
Volumes have been trending in excess of 740 million cubic feet a day during July with wells continuing to ramp an additional completions expected.
In the Williston segment second quarter segment, adjusted EBITDA was lower by $2 million compared to the first quarter 2019, primarily as a result of our divestiture of Tioga midstream, which contributed approximately $900000 in our first quarter 2019 results.
As a point of reference Tioga contributed $2.3 million to our financial results in the second quarter of 2018.
Our bison midstream system experienced two weeks of downtime in the quarter due to operational issues stemming from maintenance on third party infrastructure located downstream of our bison system.
These operational issues continued on devices system for the first three weeks of July but they have now been largely resolved.
Second quarter liquids volumes averaged 94000 barrels a day down approximately 9000 barrels a day from the first quarter 2019, primarily due to the sale of Tioga, which accounted for approximately a third of the volume decline.
Together with natural volume declines related to 44, new wells that were commissioned in the second half of 2018.
23, new wells were connected in the second quarter, including 12 that occurred at the end of the quarter, which resulted in average volumes in excess of 100000 barrels a day for the last two weeks of June .
We are encouraged by the outlook for the Williston segment in the second half of 2019 based on our expectation for for approximately 50, new well connects over the balance of the year, including six wells that were completed in July by a customer and northern Williams County that averaged more than 3000 Boe per day on a 24 hour IP basis.
The majority of well connections in the second half of 2019 are from customers, who we gather both crude and produced water. So we feel really good about our volume outlook out here.
DJ Basin segment, adjusted EBITDA totaled $2.8 million in the second quarter of 2019, a 5.3% increase compared to the first quarter 2019. Despite two weeks of downtime at the end of the quarter to facilitate the commissioning of our new 60 million a day plant.
We estimate that this downtime impacted the DJ segment results by approximately $800000. We are excited about the volume ramp that is currently underway in the DJ segment.
And based on the combination of the more than 30 million cubic feet a day, we're currently processing.
Together with roughly 50, new well connections expected in the second half of the year and approximately $600000 of monthly demand payments that were triggered as a result of plant startup.
We expect for annualized segment adjusted EBITDA for the second half of 2019 to be more than triple the $7.3 million of DJ Basin segment, adjusted EBITDA that we reported in all of 2018.
Lastly.
Volumes in the Permian Basin averaged 17 million cubic feet a day in the second quarter of 19.
Up 13.3% from the first quarter of 19.
We commissioned a new compressor station at the end of the second quarter, which facilitated a new source of volume throughput for our gathering and processing system.
Importantly, we generated positive EBITDA in the month of June and think we've turned the corner as it relates to some of the fits and starts we experienced in the first half of the year related to establishing a new operating footprint in a new geographic basin.
We expect 13, new wells to be turned in line in the fourth quarter of 2019, and we expect continued improvement and processing recoveries and operating efficiencies as plant utilization increases.
Now turning back to the partnership.
SLP reported second quarter, 2019, net income of $4.8 million and $43.5 million of net cash from operating activities.
Capital expenditures for the second quarter of 2019 totaled $50.2 million and were primarily related to our continued expansion activities in the DJ basin.
And the Permian basin, including $8.8 million related to our double lead development activities.
Going forward.
We will account for doubly as an equity method investment.
Of note our legacy areas, which include the PR Barnett and Marcellus shale segments included only $300000 of total capital expenditures for the quarter and continue to represent a valuable source of free cash flow for the partnership.
We had $573 million outstanding under our $1.25 billion revolving credit facility at June 32019, and $677 million of available borrowing capacity subject to financial covenant limitations.
In April 2019, we made a $100 million prepayment on the DPP show.
Total leverage at quarter end was 4.84 times compared to a maximum limit of 5.5 times.
I'll remind you that we have over $225 million of debt on the balance sheet associated with our recently commissioned BJ plan, our Permian segment, and our investment in double lead to date.
None of these investments have yet thrown off any EBITDA.
Which is skewing our reported leverage ratio higher than normalized run rates by approximately three quarters of a term.
We expect our leverage to naturally declined by the end of 2019.
Due to a combination of EBITDA growth in the second half of 2019, particularly from the recent startup of the 60 million today.
DJ plants.
And.
And optimization of our Permian assets together with flowing capex.
We expect leverage to be around 4.7 times by the end of 2019.
Leonard will speak about potential asset sales later in the call.
But to the extent, we sell noncore assets. This will obviously accelerate our deleveraging.
With respect to our financial guidance, we expect full year 2019, adjusted EBITDA to be at the low end of our $295 million to $315 million range, primarily due to a delay in volume growth in the Permian and slower volume growth than previously assumed behind our DJ and some new systems.
We continue to expect total capex of $150 million to $175 million, even with our recent Friday of the doubly project and absent any asset sales. We continue to expect the full year 2019 distribution coverage will average between 1.75 times and 1.95 times.
Now I will turn the call back over to Leonard.
Thanks Mark.
We are encouraged by the outlook for the business and the ramp in cash flow that we are witnessing behind our assets.
In addition to EBITDA growth, we continue to take steps to strengthen our balance sheet. These steps include evaluating noncore asset sales as a means of streamline in our portfolio.
Redeploying capital from legacy areas to high growth core focus areas.
And maintaining a laser focus on capital allocation and cost control.
Given that we are having active discussions on multiple possible transactions I can't speak in detail about the asset divestiture program.
But I expect to be in a position to share more before the end of the year.
I would like to underscore.
That any potential transaction will be grounded in some its objectives.
Including streamlining our portfolio.
Focusing capital deployment in our core focus areas and strengthened our balance sheet.
Our legacy areas as previously discussed represent the most likely candidates for divestiture.
As Mark alluded.
The business units generated more than $40 million of free cash flow in the second quarter of 2019, and certainly valuable assets.
And there is a healthy level of upstream activity in these regions for example.
Our anchor customer on the DFW midstream system.
Commissioned three new wells, just two weeks ago, which are significantly outperforming expectations.
The wells, which are still ramping up well, averaging more than 10 million cubic feet a day, each and we will provide strong momentum for our Barnett segment.
Into the second half of the year and should provide customers with added incentives to accelerate additional drilling activity.
On capital allocation.
We are focused on accretive growth within our core focused areas and we are dedicating more than 90% of our 2019 capex budget to expand our presence in these segments.
In addition, we recently conducted an internal review of expenses.
And we have identified more than $5 million per year.
Recurring expenses that will be eliminated without impacting the integrity of our assets the safety of our operations or our level of customer service.
We have begun to see the benefit of these measures in the second quarter and we expect to see these results accelerate.
In the second half of 2019 with even more of an impact next year.
Finally, we were pleased to announce that keep the key and industry veteran has been selected to be summits, new president and CEO .
Effective September 16.
We issued a press release in that regard earlier this morning.
He joins us from Crestwood equity partners.
Where he most recently served as chief operating officer, he brings industry knowledge depth of experience and terrific leadership skills to the role and we welcome him to the summit family, we will have a smooth transition.
We're definitely excited about our future under his leadership.
To wrap up.
We have a great deal of confidence in our outlook for the business in both the second half and over the long term.
We have an excellent line of sight into cash flow ramp based on.
The ongoing ramp of our DJ facility together with run rate volumes and near term completion activity in each of our core focus areas, which will be complemented over the long term by take or pay cash flows related to our double the venture.
We thank you for your support and appreciate the opportunity to create long term value for our unitholders and now let's open the call for questions.
Thank you and we'll now begin the question and answer session. If you have a question. Please press star one on your telephone keypad, if youd like to be removed from the queue. Please press the pound sign or the hash key distributor speakerphone. Please pick up your handset for speech for dialing.
Once again, if you ask a question. Please press star one on your telephone keypad.
From RBC capital markets, we have Elvira Scotto. Please go ahead.
Hi, good morning, everyone.
Can you comment.
A little bit more about on your guidance.
Yes that could be at the low end of your EBITDA guidance range now due to a more moderated ramp of volume growth and your Permian basin in Utica shale segments.
Although you sounded pretty positive when you ran through those segments. So I guess can you talk about the comfort level you have in your 2019 guidance given all the recent producer commentary across all regions is this guidance based on discussions you've had recently and then is it correct to.
I assume that if producer activity changes throughout the year for example, if a producer releases a rig that that would be a bigger impact in 2015 versus 2019, I know theres a lot in there, but just any color would be helpful.
Good morning, as we get the gist of the question.
That's still yet.
Obviously, a lot of work has gone into.
Our.
Our guidance.
And I valuation of the second half.
And we will start with the with the first half.
And.
Of what occurred there the reasons for the soft.
Soft quarter.
As mentioned headwinds associated with the Permian ramp up in volumes, which are they are now.
And.
Getting the DJ plan on were significant issues relative to the to the soft spot.
And as we look at the second quarter and I'll get Mark elaborate on this but as we look at the second half of the year that is.
We do have ramp in volumes that we outlined and.
Frankly, they are somewhat papered from the.
What was that comprise in the original.
Forecast. So we did have to taper those somewhat but we still have a very positive outlook for the second half view, yes.
Hey, good morning, Elvira this is mark.
You hit the nail on the head obviously the commodity price backdrop is somewhat volatile at the moment and we are seeing some customers make some subtle changes to their development plans.
But I'll just reiterate our long term outlook continues to be strong.
We've got six rigs working behind our system today and over 120 Ducs of inventory that are available to come on online. So.
It's important to understand that.
We set our full year guidance range wide enough to accommodate some changing customer plants.
And given what we've experienced in the first half of the year as one or just mentioned.
With a a slower pace of development behind our Permian systems, some downtime at the DJ and bison assets and the fact that our DJ plant came on a little later than than expected in the second quarter and given the fact that our customers are bit more tempered in their pace of development.
Looking at the balance of the year through a more conservative lens.
We think will trend towards the lower end of our guidance range for 2019, but this is certainly not to suggest that we won't see sizable growth relative to the first half.
We will.
Will we see compelling visible growth actually in the second half of the year.
Just to point out a few segments and the Utica.
Both our Odisi and SM you segments are currently flowing at higher levels.
Than what we saw in the second quarter.
And we're really benefiting from from some new wells that were recently completed.
In the DJ you clearly heard how encouraged we are.
We're already processing over 30 million cubic feet, a day and we expect another 50 wells in the second half of the year to accelerate volumes, which coupled with sizable demand fees from the commissioning of the plant give us really good visibility on cash flow growth here in the second half.
In the Williston over 50, new wells in the second half of the year.
And then in the Permian currently flowing in excess of 20 million a day.
Which is really a point at which we can efficiently operate the processing plant.
We are looking for 13, new wells to complement that that existing volume in the fourth quarter.
And so then with respect to our legacy non core assets.
Seeing some fairly good activity here in the second quarter. The Barnett has had three.
I'd say very large wells recently commissioned behind that system.
We got five new wells coming on behind the Mountaineer system in September and then a rig on the bison system today that will complete eight new wells and get shorter so.
I think as I will just summarize we are looking at the second half of the year through more of a conservative lens and we're feeling.
Confident about about our growth profile in the second half.
Okay. Thanks, and then just maybe at a high level can you talk about your SM, you and and Ohio gathering businesses.
Especially given this negative sentiment around northeast gas, how do you see that those businesses.
Growing overtime.
Sure I mean look we have we have exposure really across all three windows in the play.
Dry wet and condensate on our Odisi system in which we have a.
And equity interest and then on our dry gas system at SM you. We currently have a rig behind our has been used system.
We've seen to date about eight wells.
Turned in line and we have an expectation for another two.
Dry gas wells behind that system in the fourth quarter of this year.
We do expect another customer a separate customer on that that's a new system to bring.
Another rig out here in the fourth quarter and they are expecting some.
Some some pretty stellar results from about five wells that they expect to drill here in the second half and commission in the first half of 2020.
So look they are they're excited about what they're seeing from a from a production standpoint, and we're excited to receive that all add. Additionally, we are seeing a throughput mix toward higher margin volumes. So we are origin as well pad sites that are connected directly involved and so the volume Debbie.
Mark.
Which is positive for us as well.
Okay.
So then just just.
Curious on the.
The final dropdown.
Some it initially acquired the assets the multiple layers was fixed at six and a half times based on a formula.
So given the performance of the assets since you fixed the DP PEO payment, where do you think that multiple ultimately shakes out.
Yes, all of our that's.
Not a calculation that I have available currently.
Obviously, we fix the DPP show.
At.
Three or three and a half in the first quarter.
And that's.
That's that's what the important.
Part of our go forward obligation and.
From from multiple sample and I'm not prepared to comment on on what that will be at some point in the future.
Okay sure Thats fair enough.
All right. That's all I had thanks a lot everyone.
Thank you of October .
From Suntrust, we have Tristan Richardson. Please go ahead.
Hey, good morning, guys.
We appreciate the update on your strategic priorities, particularly on the de levering side.
It seems as though you have some things percolating that could materialize this year.
Would you characterize the divestiture program is something that can be transformational from a leverage perspective or more of a modest streamlining of the portfolio.
Yes so.
Again actively involved in discussions with several parties regarding asset divestiture and our goal is to accomplish that.
By the by the end of the year.
And it will have.
An effect on on EBITDA I'm, sorry on on on leverage.
And to comment on it though.
You'd have to take in consideration cash flows and so we expect to be a leverage to be.
4.7 by the end of the year and then after that.
Ends on cash ramp is and which assets low.
Okay helpful. Thank you and then.
Just on the.
Second DJ plant and seems like you know commentary may have shifted a little bit timeframe seems a little bit more up in the air.
Talking about sort of.
What keeps this thing what keeps this project a 2020 type event and things you're thinking about there.
Sure. So in marks comments, we mentioned in the DJ Another 50 wells that are out there and we also talked about the turbulent environment or dynamic environment and so what we're doing and I'll, let Brad our chief commercial officer.
Elaborate on this but what we are doing is staying in contact with our customers and.
In the meantime, we are actually doing engineering on the project we've permitted the project at the plant and so when we feel comfortable that.
The customers are ready, we will be able to pull the trigger.
Yes, well one thing I would add to that is that this is the first to the third quarter will be the first quarter that we have.
A full quarter of the the most recent plant that were commissioned Hereford. So we're going to see what that looks like we'll stay in front of the producers and we will optimize the timing of the second well.
Helpful. And then just last one for me Leonard Mark just at the risk of putting words in that.
New leaderships mouth can you give us a preview of how the strategy might differ or the attack of summit LP might change.
With it.
Different leadership.
Yes. So you know if you can read his background in a lot of you already already know he.
A lot of experience relevant experience and when I say relevant I mean in the same basins. The same thing that we same thing that we do.
Chris Wood looks a lot like summit.
And.
Some it looks like Chris within a few years ago.
So.
While our core strategy does not change I mean, we still are about streamlining the portfolio capital discipline growth in our core focus areas.
Steve is going to hate is going to come in.
And enhance.
And advance those core strategies and so I'm sure he'll.
Yes definitely.
An added resource for for summit is his experience and knowledge in our basins is just.
Instruments.
Thanks, guys very much.
And once again, if you do have a question. Please dial star one on your telephone keypad.
From capital one Securities we have Kyle Please go ahead.
Good morning.
Oh, the double project you mentioned the Sevenci application has been filed with FERC. We've heard from some other companies that the FERC approval process has become slower lately have you factored that into your timeline or taken any steps to keep the project on schedule.
Yes, so we've been very strategic about that so even before we've been talking about for falling for months now and so we've been having monthly meetings with with the four monthly meetings with the BLM and so that when they received our first the hauling there's no surprises they helped us work on that filing.
So that helps us tremendously expedite that.
Also.
We have some experienced people that help put this in these documents together again working with the FERC and we anticipate a 12 month process and that's what they've communicated to us as well.
Okay. Thank you.
And as we are getting a little bit closer to 2020.
You've got several big ticket items.
Yes, it looks like some of it is going to spend in the ballpark of.
45 to 50 million for double you've also got the 300 million GPO payment.
Plus any other growth and maintenance Capex can you give us your latest thinking around how you're going to fund next year.
Sure Kyle.
This is mark.
Nothing has changed with respect to what we've said before regarding our financing plans. So our plan is to finance these obligations on balance sheet, what combination of debt and equity.
And then we'll make corporate financing decisions to accommodate these obligations I mean, obviously.
We expect to use our revolver to fund our debt.
And we expect our borrowing capacity to increase under the revolver well into 2020 as our leverage ratio comes down.
From both increasing EBITDA and so on Capex, but.
As I mentioned in my prepared remarks, and our leverage ratio is currently skewed towards.
4.4 times.
It's higher to the tune of about three quarters of return.
Due to some investments that we've made recently, namely our new DJ plant.
The Permian system, and doubly all of which have yet to throw off any.
EBITDA.
And so as those ramp up we would expect some natural deleveraging to occur.
With respect to equity.
We continue to move forward on our process of evaluating noncore asset sales.
As a way to bring equity into the business and then.
As we've mentioned many times, we always have the ability to backfill our equity needs by issuing equity for some portion of the DPP.
Remember also that we do have some latitude with respect to when we make that DPP payment.
Just to remind you we can begin making that payment in March 2020.
But we do have options to extend that payment throughout 2020, and take advantage of higher borrowing capacity throughout throughout that.
Time period.
With respect to double Lee.
Obviously.
We secured.
Great JV partner and Exxon Mobil developed to develop this project. They they currently have a 30% interest in doubly and they have an option to increase that that interest by 20% in the future.
But but the prior to fight the of doubly.
We mentioned this in our prior press release, we worked with our banker to find ways to enhance our ability to finance doubly on balance sheet.
We accomplished this with the banks agreeing to provide increased flexibility related to our financial performance metrics during the construction period.
And outside of that I just mentioned, we're also having discussions.
Around our longer term strategy of potential incurring non recourse asset level financing.
Which we think could be a very efficient and competitive alternative for us.
Yeah.
Okay Thats all from me thanks, guys.
Thank you.
You heard from US capital Advisors, we have James Carreker. Please go ahead.
Yes, thanks for the question.
I guess one question on you talked about being able to issue equity for the D. P O.
I mean is that something that you would seriously consider I guess kind of given how the.
Stock has performed and then I guess that the yield on the stock.
As it sits today.
Yes, James This is mark I mean, it is absolutely something that we will consider it.
Obviously.
A balancing act.
That that we need to take into consideration with how much equity and how much debt.
Obviously, our leverage ratio will be.
From center, when we determine the appropriate consideration mix.
But but we will consider equity we will also consider as I mentioned some of the.
Options that we have already embedded within the agreement to defer some of that payment throughout 2020 to be able to take advantage of.
A potential higher borrowing under the revolver and then I'll tell you.
This all.
Is predicated on.
Our success.
And movement forward from an asset sale perspective, and so that will really color a lot of our.
Behavior.
Downstream of that.
That again.
Thanks, and then I guess I know it was only six months ago.
That you've reduced the dividend, but you know from a capital allocation standpoint does it does it make sense to to reevaluate the dividend policy.
And near term.
Yes, we think that the the distribution reduction that we.
We announced back in February this year.
Was meaningful enough.
You know and really gave us.
The ability to improve our distribution coverage, which.
I've heard for the last two quarters, we've reported in excess of 1.6 times distribution coverage.
And it also gave us.
The ability to evaluate.
Asset sales, which as Weve mentioned, we're doing.
And so we think.
The reduction was was large enough it was.
Meaningful enough to our.
Our capital position and financial position.
And.
No we're not thinking about further reductions to that at the moment.
Okay, and one last one if I could.
The.
Public float of SMS IP is now.
Sub 300 million is there any discussions.
With energy capital partners to kind of.
Maybe make this a take private situation just given that it's.
The public side is relatively small relative to the.
The total value of the enterprise.
Yes. The simple answer is no there are no discussions with the ACB about you about thinking private.
Okay. Thank you.
Good.
We have no further questions at this time, we'll now turn it back to Leonard Miller for closing remarks.
Thank you.
I just want to note that in preparation for this call I was looking back at the previous script.
Uh huh.
And you know, we talked a lot about the DJ plant and and getting that done and so.
That's done now we actually accomplish that objective we talked a lot previously about F.I.D. and JV and doubly and that is done we talked about for filing done.
We also talked a lot about capital and cost initiatives and call that done in doing we continue to be diligent, we're both capital and cost.
The other thing we talked about obviously is a.
Search for the CEO .
For for some it to lead us forward and that is done we have an excellent candidate in he actually had some time to spend some time within building with him very knowledgeable very driven results oriented simply put he's the right guy for someone at the right time.
And lastly, we talked a lot about asset sales and balance sheet management and that is something that we're doing it's well underway. So when I look back we have a a pattern of execution and when I look forward, we've laid the foundation for solid future.
So I do think you guys for your interest in summit and we look forward to reporting our results next quarter.
Q, ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.