Summit Midstream Partners Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

Key Takeaways

  • Summit completed its conversion from an MLP to a C Corp and executed multiple refinancing transactions, which simplified the corporate structure, more than doubled trading liquidity, reduced total debt, lowered cost of capital and pushed the nearest debt maturity to 2029.
  • The announced acquisition of Tall Oaks Midstream in the Arkoma Basin is expected to add approximately $250 million of pro forma 2024 adjusted EBITDA, diversify the portfolio with a gas-weighted asset and accelerate the timing of a return-of-capital program.
  • In Q3 Summit generated $45.2 million of adjusted EBITDA (up 9% quarter-over-quarter) and guided Q4 adjusted EBITDA of $45–50 million, implying about 5% year-over-year growth at the midpoint.
  • Operationally, full capacity was restored at the key DJ Basin compressor station (eliminating third-party offloads) and a $10 million Rockies optimization project was greenlit, targeting a one-year payback and margin uplift in Q2 2025.
  • Activity remains robust behind Summit’s systems: Barnett well connects (27 YTD) outpaced guidance, the Rockies segment has 105 wells connected year-to-date with over 90 DUCs on standby, and six rigs are currently active ahead of a busy Q4 and early 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Summit Midstream Partners Q3 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Hello, and welcome to Summit Midstream Corporation third quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to Randall Burton. You may begin.

Randall Burton
Director of Finance at Summit Midstream Corporation

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 presentation section, or quarterly results section. With me today to discuss our third 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.

Randall Burton
Director of Finance at Summit Midstream Corporation

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 SMLP's 2023 annual report on Form 10-K and Exhibit 99.1 to the partnership's current report on Form 8-K, filed with the SEC on June 3rd, 2024, as well as SMC's registration statement on Form S-4 as declared effective on June 14th, 2024, for a listing of factors that 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've 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
President, CEO and Chairman at Summit Midstream Corporation

Thanks, Randall. Good morning, everyone. Summit had a strong third quarter, generating $45.2 million in Adjusted EBITDA, representing about 9% quarter-over-quarter growth, all while we continue to execute on our broader corporate strategy through several critical transactions. Before jumping into operations, I wanted to quickly recap the progress we made on the corporate strategy front. During the third quarter, we reorganized Summit from an MLP to a C-corp, which simplified our corporate structure, made our stock appeal to a broader set of investors, and more than doubled our overall trading liquidity thus far. We also executed on a series of refinancing transactions, which significantly reduced the total quantum of debt outstanding, reduced our overall cost of capital, and pushed the nearest debt maturity out to 2029. And finally, on October 1st, we announced the acquisition of Tall Oak Midstream in the Arkoma Basin.

Heath Deneke
President, CEO and Chairman at Summit Midstream Corporation

This is a very value-accretive and balance sheet-enhancing transaction, which we believe increases our scale, further diversifies our portfolio with the addition of a high-growth gas-weighted asset, and accelerates the potential timing of a return of capital program for our shareholders. Pro forma for the Tall Oak transaction, Summit expects this to be about 3.8 times levered at closing, with approximately $250 million of pro forma 2024 Adjusted EBITDA. So all three of these strategic transactions position Summit, we believe, for continued growth and substantial value creation for our shareholders going forward. Now, turning to operations, we continue to see encouraging levels of activity behind our systems, which we expect will lead to continued Adjusted EBITDA growth in the fourth quarter as well. During the third quarter, we connected 38 wells and currently have six rigs running behind our systems.

Heath Deneke
President, CEO and Chairman at Summit Midstream Corporation

None of the wells connected during the quarter were in the Barnett region, which brings total year-to-date Barnett well connects to 27, which exceeds the high end of our original 24 guidance range, both volumetrically and from a segment EBITDA standpoint. While it is too early to provide formal guidance for 2025, we continue to have a rig running behind the system, drilling wells that we think are currently scheduled to be completed in 2025. So we wouldn't be surprised if 25 ends up fairly similar to 24 from a total well connect perspective in the Barnett. Moving over to the Rockies segment, we turned in line 29 wells in the DJ during the quarter, bringing total year-to-date well connects in the segment to 105 wells. Currently, we have five rigs running in the region and over 90 DUCs accumulated behind our system.

Heath Deneke
President, CEO and Chairman at Summit Midstream Corporation

We're expecting another pretty active fourth quarter and first half of 2025. I would also like to highlight a few operational and engineering accomplishments during the third quarter. As you may recall, during the second quarter, we experienced some operational downtime at one of our major compressor stations in the DJ, which pushed us to have to utilize third-party processing offloads, which significantly impacted margins during the second quarter and to some degree in the third quarter as well. I'm happy to report that as of the beginning of October, we are back to full operating capacity in the DJ, and we expect our margins will improve on into the fourth quarter.

Heath Deneke
President, CEO and Chairman at Summit Midstream Corporation

Additionally, during the third quarter, we made a final investment decision and began construction on a $10 million optimization project in the Rockies segment that is anticipated to have an approximate one-year payback and improve our Adjusted EBITDA margins beginning in the second quarter of 2025 when it's turned online. Moving to the rest of the year outlook, as I've already mentioned, we continue to see robust activity levels behind our system with six rigs running and over 100 DUCs on the system thus far. We expect the fourth quarter to be another very active quarter, and we expect to generate $45 million-$50 million of Adjusted EBITDA during the quarter, which would represent about 5% growth at the midpoint from year or quarter over quarter. So with that, let me hand the call over to Bill to provide some additional details on our financial results.

Bill Mault
CFO at Summit Midstream Corporation

Thanks, Heath, and good morning, everyone. Summit reported a second quarter net loss of $197 million, which was impacted by $142 million of non-cash income tax expense associated with establishing Summit's deferred tax liability associated with the C-corp conversion. We generated Adjusted EBITDA of $45.2 million, representing solid quarter-over-quarter growth and capital expenditures of $10.9 million, with the majority of the CapEx spent in the Rockies associated with pad connects and the new project Heath mentioned. With respect to SMLP's balance sheet, we had net debt of approximately $728 million. Our available borrowing capacity at the end of the third quarter totaled approximately $350 million, which included $1 million of LCs. Now on to the segments. In the Rockies segment, which is inclusive of our DJ and Williston Basin systems, we generated Adjusted EBITDA of $24.9 million, a 9% increase relative to second quarter.

Bill Mault
CFO at Summit Midstream Corporation

The increase in Adjusted EBITDA is due primarily to increased product margin, and as Heath mentioned, we finished up some maintenance on the DJ system, which really negatively impacted earnings in the second quarter. With that maintenance complete, we are not offloading as much gas to neighboring systems. In addition, while volumes were relatively flat quarter over quarter, we had relatively more volume coming from higher margin contracts. On the crude side, liquids volumes averaged 70,000 barrels a day, a decrease of 5,000 barrels a day relative to second quarter, due primarily to natural production declines and no new wells connected to the system. Natural gas volumes averaged 128 million cu ft a day, a decrease of 2 million cu ft per day relative to second quarter, and we connected 28 wells in the DJ during the quarter.

Bill Mault
CFO at Summit Midstream Corporation

The Rockies segment currently has five rigs running behind the systems and approximately 90 DUCs. The Permian Basin segment, which includes our 70% interest in the Double E Pipeline, reported adjusted EBITDA of $8.4 million, an increase of $0.8 million relative to the second quarter, due primarily to higher volume throughput on the pipe. Volume throughput on Double E averaged 661 million cu ft per day, representing an increase of 20% relative to the second quarter and an increase of approximately 100% from the third quarter of last year. We're excited about the momentum we are seeing behind the pipe and continue to work on additional commercial contracts. The Piceance segment reported adjusted EBITDA of $12.8 million, consistent with the second quarter. Volume throughput averaged 284 million cu ft per day during the quarter, a decrease of approximately 2%.

Bill Mault
CFO at Summit Midstream Corporation

The Barnett segment reported Adjusted EBITDA of $7.3 million, an increase of $1.9 million relative to the second quarter, primarily due to a 26% increase in volume throughput from the second quarter. The volume throughput increase is primarily due to our anchor customer completing and connecting nine new wells during the quarter. Additionally, as we mentioned last quarter, another customer on the system who has had production shut-in partially resumed flowing approximately 10 million-15 million cu ft per day of shut-in gas in June. Over the past month, they have slowly increased production and are now flowing approximately 20 million-25 million cu ft per day. We still believe there is approximately 20 million cu ft per day of shut-in production behind the system. With that, there is still currently one rig running and 14 DUCs behind the system today.

Bill Mault
CFO at Summit Midstream Corporation

With that, I'll turn the call back over to Heath for closing remarks.

Heath Deneke
President, CEO and Chairman at Summit Midstream Corporation

Thank you, Bill. So before I hand the call over for questions, I wanted to remind everyone of our upcoming special meeting of shareholders scheduled for November 29th of 2024. We filed the definitive proxy related to the Tall Oak Midstream acquisition with the SEC on October 31st, and materials have been mailed out to all shareholders. We strongly encourage all shareholders to vote for this very important and value-enhancing transaction. If there are any questions related to the proxy or otherwise, please don't hesitate to reach out to us. And with that, Operator, please open the line for questions.

Operator

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Ladies and gentlemen, I'm showing no questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.

Analysts
    • Bill Mault
      CFO at Summit Midstream Corporation
    • Heath Deneke
      President, CEO and Chairman at Summit Midstream Corporation
    • Randall Burton
      Director of Finance at Summit Midstream Corporation
Powered by Quartr