Yahoo Finance Summit Midstream Partners, LP (NYSE:SMLP) Q1 2024 Earnings Call Transcript
Summit Midstream Partners, LP (NYSE:SMLP) Q1 2024 Earnings Call Transcript May 3, 2024
Summit Midstream Partners, LP isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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. After the speaker presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randall Burton, Director of Investor Relations. 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 or 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 Mault, 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 2023 annual report on Form 10-K, which was filed with the SEC on March 15, 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.
And with that, I'll turn the call over to Heath.
Heath Deneke: Thanks, Randall, and good morning, everyone. Thank you for joining us today to discuss our first quarter 2024 results. We had a very busy first quarter, really on all fronts. Starting on the strategic perspective, we successfully wrapped up our strategic alternatives review, announced the divestiture 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 3.9 times, a completely undrawn $400 million revolver and a little over $350 million of pro forma unrestricted cash.
We are very well positioned to pursue those opportunities while we further delever the balance sheet and continue to progress or to make progress towards achieving our long-term leverage target of sub 3.5 times. Commercial discussions on Double E continue to remain extremely productive. Earlier this week, we concluded a successful open season that resulted in the award of 75 million a day of incremental 10-year take-or-pay commitments with a subsidiary of Matador Resources. This commitment was really there to support their 200 million a day expansion of the Marlin processing plant in Mexico. The Marlin plant complex is already connected to the Double E 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 approximate 2.5 year extension of their existing agreements and now are extended to a 10 year term effective May 1, 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. We've also had dialogue with multiple parties that have recently announced plant expansions in and along the Double E corridor. Furthermore, we find a new max rate interruptible agreement in New Mexico for up to 150 million a day of incremental volumes. So look, both of these contracts, both the Matador contract and the [Indiscernible] contract for processing plants are already connected to our systems.
So therefore, they're really extremely value accretive to Double E, if there's 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 Double E 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 we're expecting to be 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, both 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 Bill to provide some additional details on our financial results.
Bill Mault: 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 in the Rockies associated with pad connections. With respect to SMLP's balance sheet, we had net debt of approximately $700 million with an undrawn $400 million ABL credit facility. 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 majority. 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 $0.5 million 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 74,000 barrels a day, a decrease of 7,000 barrels a day relative to the fourth quarter due primarily to natural production declines. Natural gas volumes averaged 124 million a day, 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 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 has two rigs running on the systems and more than 50 docks. The Permian Basin segment, which includes our 70% interest in the Double E pipeline reported adjusted EBITDA of $7.3 million, a decrease of $0.7 million relative to the fourth quarter due primarily to $1 million of other revenue recognized in the fourth quarter.
Volume throughput on Double E 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 Double E. The Piceance segment reported adjusted EBITDA of $15.2 million, down $0.9 million relative to the fourth quarter due primarily to natural production declines and no new well connections to the system during the quarter. Volume throughput averaged 312 million cubic feet a day during the quarter, a 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 $0.7 million relative to the fourth quarter, primarily due to lower volume throughput, partially offset by four new wells connected to the system.
There is currently one rig running and 24 docks behind the system and a 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 averaged 1.56 Bcf per day during the quarter inclusive of 849 million cubic feet a day of 88 OGC volumes. And segment adjusted EBITDA totaled $29 million, an increase of $0.6 million relative to the fourth quarter. During the quarter, we connected three wells beyond the SMU system and seven wells behind OGC. And as we announced today, as of May 1, with the sale of the Mountaineer system to 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.
Heath Deneke: Yes. Thanks, Bill. Look, as I said earlier, very pleased with the first quarter performance, the activity levels behind our system and certainly the progress, great progress that we've made on the balance sheet. We believe we're in an opportunity-rich environment and we look forward to continue to build on our progress and momentum throughout the year. Before I open 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 9, 2024 at 2:00 p.m. Central Time. All unitholders should have received proxy materials associated with the meeting, certainly are a number of important items on the agenda, they are reported 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 from Summit's unitholders to convert the partnership to a C-Corp. While the exact timing 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. We continue to strongly believe that converting to a C-Corp positions the company to maximize value for our unitholders and 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.
See also
30 Most Fun Cities in the US in 2024 and
15 Best Places to Retire in Florida That You’ve Never Heard Of.
To continue reading the Q&A session, please click here.
