Arcadium Lithium plc
Q4 2020 Earnings Call Transcript

Published: 28 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Altus Midstream Fourth Quarter and Full Year 2020 Earnings Results Call. . I would now like to turn the call over to Patrick Cassidy, Director, Investor Relations. Please go ahead.

[Patrick Cassidy:]

Good afternoon, and thank you for joining us on Altus Midstream Company's Fourth Quarter and Full Year 2020 Financial and Operational Results Conference Call. We will begin the call with an overview by Altus Midstream's CEO and President, Clay Bretches; and Ben Rodgers, CFO, will summarize our financial performance and outlook. Our prepared remarks will be approximately 15 minutes in length with the remainder of the call allotted for Q&A. Remarks during the call may also refer to the Altus Midstream investor presentation, which can be found on our Investor Relations website at altusmidstream.com/investors.

[David Bretches:]

Good afternoon, and thank you for joining Altus on its fourth quarter and full year 2020 results conference call. I know many are relieved to have last year behind us and are looking forward to the year ahead. Despite the many headwinds faced last year, Altus turned in a strong performance, and this sets up for continued improvement in 2021. My remarks today will review last year's results, noting highlights within our joint venture pipeline businesses and gathering and processing operations, including our views on ESG and accomplishments in that area of our business. I'll provide an update on our outlook for 2021, and Ben will review our financial performance, 2021 guidance then open up the call to any questions from sell-side analysts who follow us. I'll move on now to our results. An underrated aspect of our working through difficult circumstances is that they can reveal strengths and weaknesses that might not become apparent otherwise. 2020 was certainly a challenging year, but we successfully weathered the storm. Adjusted EBITDA, distributable cash flow and gathering and processing volumes all came in at or above the midpoint of our guidance for 2020, which was reassessed in May as the impacts from the pandemic emerged. We subsequently raised guidance in July and November with our improved outlook for adjusted EBITDA and DCF. Our diversified asset base, combined with the relentless execution by Altus team members to optimize their performance, contributed to the improved results during the year. Our growth capital expenditures for the year came in just over $360 million, which was the high end of our guidance range. This reflects a shift in some of the CapEx spending for Permian Highway from 2021 into 2020, which accelerated the commissioning and in-service dates for PHP. This is a trade-off we were eager to accommodate as it pulled forward contributions to Altus from this asset.

[Ben Rodgers:]

Thank you, Clay. In my prepared remarks, I will review Altus' financial performance for the full year and fourth quarter of 2020, cover our guidance for 2021 and provide our thoughts on the balance sheet in the year ahead and how we're looking at addressing the preferred equity. As noted in the press release issued yesterday, Altus reported net income, including noncontrolling interest, of $80 million for the full year 2020. Adjusted EBITDA was $191 million, and growth capital expenditures were approximately $362 million.

[Operator:]

. Our first question comes from Spiro Dounis with Credit Suisse.

[Chad Bryant:]

This is Chad on for Spiro. I guess just starting off, with gas price strength that we've seen this year, have the prospects for third-party opportunities improved or conversations fairly consistent with the messaging you've provided in prior periods?

[David Bretches:]

So Chad, this is Clay Bretches, and thanks for the question. And we're very positive about the increase in gas prices. We do believe it's going to create some third-party opportunities. Ben alluded to this in his prepared remarks, and that is producers are being careful. They don't want to get out over their skis in terms of capital spending. But at the same time, there are some prospects and positive prospects in and around the Alpine area of production. So we do believe that there's some opportunities here. I think it's something that will come later in the year, not something that producers are going to jump on right now. But we have had some conversations with others. We're very encouraged by the DUCs, the completion of the 2 DUCs that Apache announced this morning that they were pleased with also in their call. Five more are scheduled for the spring, sometime beginning in April, so excited about what that can possibly do for the field and for throughput on the G&P side. So overall, I think just given the commodity price environment, we do have a better year ahead of us, certainly better than 2020 in terms of prospects. Even in 2020, when we didn't have a lot of prospects, we were able to dig a few out of the dirt and get some third-party business and increase our EBITDA with that third-party business. We have expectations that we'll be able to do even better this year.

[Chad Bryant:]

Okay, okay. That's really helpful. And then I guess just a follow-up. Just looking at your 2021 objectives, you mentioned the preferred refinancing is on the horizon. Do you have a preferred method of refinancing or one that you see is more likely to address that preferred equity? Or is it still too early to say on that?

[David Bretches:]

Yes. It's really too early. You can tell on one of the pages from our investor presentation, we do have some retained cash flow this year. That's right at the midpoint of our - assuming the midpoint of our DCF guidance, so there could be some upside there that assumes kind of no additional asset sales. We've talked about some of those in the past as well. And as you can tell, we ended the year last year with almost $25 million of cash on the balance sheet. So we'll have a little bit of cash, and we're looking at all sorts of different alternatives. It's really too early to tell right now. I mean we're sitting in February and we still have some time, as we've said before, kind of the perfect timing of the crossover of the MOIC and IRR, and that is kind of late '21, early '22. So we've got some time, but it's good to see the markets opening back up, the high-yield market, and other capital markets opening back up and other companies accessing those markets at attractive terms. I'll tell you that it's - our focus is going to be to keep very manageable leverage and also protect our dividend.

[Operator:]

Our next question comes from James Carreker with U.S. Capital Advisors.

[James Carreker:]

The 7 DUCs that Apache talked about this year, is that all the DUCs that they have on the system? Are there more that they could potentially complete down the road? And then is there any potential for them to return active rigs to the Alpine High area?

[David Bretches:]

Yes. James, this is Clay. And Apache has mentioned that they have additional DUCs before. But these are the DUCs that they are prepared to move on right now. They've only mentioned these 7 for 2021. It remains to be seen whether or not they would go after the remaining DUCs in the future, but that is certainly something that we would hope for as far as Altus is concerned. But that will be dictated by the economics of Apache. And I'll just add real quick. Apache commented this morning, and we're not going to add any color to that, but he did comment that those wells, the first 2 DUCs are performing very well and think that there could be an opportunity for them to bring in some additional capital to develop out at Alpine High. Time will tell on that. Obviously, you need all 7 DUCs to perform well, and so it needs a little bit of time, but it's definitely a positive indicator for us on the G&P side of the business.

[James Carreker:]

Got it. And then I guess shifting over to your 2 liquids pipes, you talked about Shin Oak kind of being flat year-over-year. Any sense for what that implies on capacity utilization? Or what the operating leverage is to Shin Oak? If more volumes do materialize back half of the year or 2022 and beyond, how much that could add?

[David Bretches:]

Yes. It's kind of hard to say, James. We've not provided that pipe-level detail. I just would reiterate that we're assuming kind of year-over-year flat volumes. Barring any material impact, I don't think it's going to be material as you look at the full year but any material impact from the freeze off last week or a couple of weeks ago. And so that's why I think that at $60, $65 oil, we'll just have to continue to monitor the utilization of that pipe. I think that there's some upside there. I think we're using a conservative estimate, which is good and appropriate, for guidance levels. And that's what's considered in our numbers for both DCF and EBITDA. So another impact that I'm sure you all are aware for the NGL pipes across the entire basin, not just Shin Oak, is ethane rejection. Gas prices are up. Propane prices kind of C3+ are all up, and ethane just hasn't experienced the price increase with the NGLs. And so that's something to kind of counterbalance any potential growth from additional Y-grade on the system. But even that being said, as we've seen in the past and you look at even last year as a barometer, there was a little bit of ethane rejection but definitely didn't last for a consecutive time period of more than a few months. And so all that being said, you wrap it up, I think, year-over-year flat is appropriate for where we are today, 2 months into the year. We'll update it when we give more color, but there could be some upside to that number.

[James Carreker:]

And then over to EPIC Crude, what's the latest status of the term loan? And what's the time line to potentially start receiving distributions from that investment?

[David Bretches:]

So the time line for distributions there has been pushed out. We - as we were sitting here last year, at the beginning of 2020 pre-COVID levels, it was looking more promising in the near term at that time. And then obviously, oil averaging in the high 30s from WTI last year had a material impact on production flows and so probably can't get and speak too much out of turn there as a 15% owner. I can tell you that we're not expecting any covenant issues with that term loan. It was a 7-year term loan that they issued in 2019, so plenty of runway there. And it's publicly traded, so you can see kind of where that term loan is marked and make your own assessment. But I don't think that it's going to be too onerous on the equity, but I do think that any near-term distributions from that from an equity perspective have been pushed out for quite some time.

[James Carreker:]

And just with the cost overruns, do you have a debt balance? Or I don't know if there's term loan plus some other debt? Or just what's the overall leverage of EPIC? Do you have that?

[David Bretches:]

I'd have to - let us kind of get back to you. I needed to confirm that before we could even speak to that, just kind of given - I know that the term loan trades, but I'm not sure how publicly available some of those numbers are. So maybe we can follow up. Pat Cassidy and I can follow up to you on that.

[Operator:]

. There are no further questions. I'd like to turn the call back over to Clay Bretches, CEO, for closing remarks.

[David Bretches:]

Thanks, everyone, for listening to our call today. I'd like to leave you with the following closing thoughts about Altus Midstream. We enter into 2021 with significant momentum. All of our JV pipes are in service. We are seeing additional completion activity at Alpine High, and the prospects for new business from related and third parties is encouraging. While recent headlines have noted new federal rules concerning limits to oil and gas activities on federal lands, I should note that Altus' assets do not operate on federal lands. Freezing weather, like we had last week, reminds us of the ongoing need for resilient and reliable energy supply. And lastly, Altus is well positioned to generate free cash flow throughout 2021. This supports our objective of returning capital to shareholders, and I am pleased we will deliver our first dividend payment next month. Operator, that concludes our call. I will turn it over to you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude the program, and you may now disconnect. Everyone, have a great day.