Noble Midstream Partners LP
Q4 2020 Earnings Call Transcript

Published: 12 Feb 2021

[Operator:]

Good day, and welcome to the Noble Midstream Partners Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Park Carrere, General Manager of Investor Relations. Please go ahead.

[Park Carrere:]

Thank you, operator. Good morning, everyone, and welcome to the Noble Midstream Partners fourth quarter 2020 earnings call. With me today to review our results is Robin Fielder, President and CEO; and Tom Christensen, CFO.

[Robin Fielder:]

Thank you, Park, and good morning, everyone. First, I would like to address the non-binding proposal that the Partnership received from Chevron to acquire the remaining public LP units of Noble Midstream. The NBLX Board has delegated authority to the Conflict Committee comprised of our three independent Board members to negotiate the terms of the proposed transaction on behalf of the unaffiliated Noble Midstream unitholders. The proposal is subject to the negotiation and execution of a definitive agreement as well as approval by the Board of Directors of the general partner. There is no guarantee that any transaction will result. And while this is ongoing, we are unable to comment about a potential transaction and we'll continue to run the business as usual. Turning to what we reported this morning, 2020 was a dynamic year for our world industry and company. In unprecedented times, we quickly instituted new procedures to protect the health and safety of our workforce, while adjusting our 2020 program to accomplish both operational and financial goals. I am incredibly proud of these efforts of our teams to swiftly adapt all while successfully integrating our business into a new majority owner and affiliate Chevron Corporation. In January, we were happy to report that we hit the ground running in the New Year, announcing our first new commercial development agreement with our affiliate in the DJ Basin. Over the last couple of years, we have made several key decisions to enhance our portfolio, improve our cost structure, strengthen the business, and minimize our environmental impact.

[Tom Christensen:]

Thanks, Robin. First, for our financial results. Adjusted net EBITDA was $95 million during the fourth quarter flat sequentially driven by new renewed activity on our acreage and a fourfold increase in freshwater delivery volumes. In the last three quarters of 2020, we were able to maintain relatively stable EBITDA, which is a testament to our continued excellent performance of our team. During the fourth quarter, we spent $7 million on organic capital projects. This marks our third consecutive quarter spending less than $10 million in organic capital and illustrates our ability to flex capital spending to adapt to changes in producer activity. Additionally, we invested $23 million into equity method investments during the fourth quarter to fund the expansion of the EPIC Crude marine terminal as well as the raw NGL pipeline project related to EPIC's BANGL joint venture. 2020 saw the completion of these five major projects. And as a result, our investment-related EBITDA has strengthened in the back half of the year.

[Operator:]

We will now begin the question-and-answer session. Our first question today comes from Spiro Dounis with Credit Suisse.

[Spiro Dounis:]

Hey, good morning, everybody. First question is on the guidance. I was hoping you guys could provide a little bit more color on what it's going to take to achieve the high end and the low end of that range? And I ask in the context of it seems like producers have somewhat set volumes in stone this year kind of regardless of what the commodity price is. So just curious, where you see the largest pockets of variability in that guidance?

[Robin Fielder:]

Hi. Good morning, Spiro. Thanks for the question. I'll start with this and see if anybody else wants to hop in. As we look back, most of our customers were putting together their budgets late last year. And as you pointed out, we've certainly seen some more supportive commodity price environment. So what we've rolled in is basically what the activity set looks like in those development plans as we have them in hand and went into our Board for budget approval. The one thing I'll say is we're certainly well positioned with our existing infrastructure and facilities should we need to ramp up. And we certainly demonstrated last year, if we need to pull back anything we can do that as well. So I think a lot of it will just be dependent on changes in activity. That's where our focus is this year. Most of our investment is just well connections. And as Tom just pointed out building out that next row in the DJ, as we continue to develop those large comprehensive development plan areas.

[Spiro Dounis:]

Got it. And, Tom, I wanted to follow-up on something you had mentioned. I think you had talked about costs shifting out of 2020 and into 2021, and that was driving some of the, I guess, year-over-year downside movement. I'm just curious, if those costs had not shifted into 2021. If we sort of assume a normalized scenario where we're not shifting expenses, I guess, what would that have done to the EBITDA range? I'm not sure if you can give us a sense of how much that was?

[Tom Christensen:]

It likely wouldn't have impacted the EBITDA range in a major way. I just wanted to highlight the uptick in costs just so that it was clear that it's not a structural shift, it's more so just activity due to our kind of belt and suspenders cost-cutting last year.

[Spiro Dounis:]

Okay. Got it. Just last quick one if you don't mind. Just on the shape of volumes throughout the year. It looks like you're targeting about 250 to 300 well connections. And I think – I guess when you look at the activity, it looks like that is front half weighted. I think you all said that, if we look at the free cash flow guidance for first quarter, actually seems to be a larger proportion of the year than kind of evenly spread out. And, Tom, I think you mentioned in that sort of closing remarks there that the back half of the year is going to be a little bit weaker. Just curious, if you could walk us through, where the biggest batches of spending are? And what the volume shape looks like as we go through the year?

[Tom Christensen:]

Yes. I think I provided some color there. Certainly, the activity from our sponsor is focused in the Mustang area. And we'll see some significant volumes there. A big piece of what we are laying out in front of us, I referenced the trunkline related to Mustang. It will – we'll build that in advance of those volumes flowing. We expect those in 2022. So that's why you're going to see the first-half stronger than the second-half. But specific color around the exact shape of it, certainly can't provide too much beyond what I said in my script.

[Spiro Dounis:]

Understood. Nice, Robin. Thanks, Tom. Have a good weekend.

[Tom Christensen:]

You too.

[Robin Fielder:]

Thanks, Spiro.

[Park Carrere:]

Thanks, Spiro.

[Operator:]

Our next question comes from Jeremy Tonet with JPMorgan.

[James Kirby:]

Hey, good morning, guys. It's James on for Jeremy.

[Robin Fielder:]

Hi, James.

[James Kirby:]

Hey, how are you doing? Just, I guess off Spiro's question on the connection guide. It looks like maybe 50 well connections are budgeted for Chevron for 2021. Can you provide a split between the DJ and Delaware there? Or is that almost all DJ? And I guess some of the same thought, it looks like Chevron is running one rig in the basin right now. Do you -- is that pretty much consistent with what you expect them to do for 2021 here?

[Park Carrere:]

Hey, James, this is Park. I think it should be intermittent through the year. If you look in our press release, we have some more detailed connection guidance, but -- and kind of lay out for you what the Mustang tail count is. I think the kind of broad remainder of that is going to be Delaware connections for the year.

[James Kirby:]

Got it. Okay. And then it looks like January was a pretty strong month with 40 well connections there. Is -- was that part of the budget? Or is that kind of within your expeditions post your budgeting?

[Park Carrere:]

Yes, we can't dive too much into what the quarter looks like so far. But I think what we laid out is inclusive of what first quarter will be, so.

[James Kirby:]

Okay. Fair enough. And then last one for me. In previous slide decks, you guys had the pie chart of kind of the third-party activity. Looking ahead to 2021, do you expect that to be a larger portion of the pie going forward just given Chevron activity and verse third-party weighting?

[Park Carrere:]

Yes, mostly at the point.

[Robin Fielder:]

Yes, James, this is Robin. It is a slightly larger pie as we continue to bring more volumes on some of our new systems, including some of these joint venture pipes as well. So that wedge is growing slightly year-over-year.

[James Kirby:]

Got it. I’ll stop there. I appreciate the questions.

[Park Carrere:]

Thanks, James.

[Robin Fielder:]

Thanks.

[Operator:]

And our next question comes from Ben Cilan with Simmons Energy.

[Unidentified Analyst:]

Yes. Hey, thanks for taking my question today. So I'm really wondering -- this one's more towards for Tom. But your thoughts on free cash flow allocation and what that looks like into 2021? Is this primarily going to be for debt reduction similar to what we saw in Q4? And then what would the cadence look like that going forward? Thanks.

[Tom Christensen:]

Thanks, Ben. Yes, certainly from capital allocation, protecting the distribution is important to us and providing a good cushion of safety behind that. We also -- kind of the first dollar certainly is going to go to hit our long-term three times debt targets or focus really on our balance sheet in the near-term.

[Unidentified Analyst:]

All right. Thanks. That’s all on my end.

[Operator:]

Our next question comes from Amar Sheth with Bellwood Partners.

[Amar Sheth:]

Hi. Hope you’re well. My question was about the EPIC pipeline projects. Can you guys talk to the progress there in getting those pipelines up to capacity? And then I had a follow-up as well.

[John Reuwer:]

This is John Reuwer here. Yes. So both EPICs are largely complete now. As you could see from our guidance, the significant capital investments are now largely behind us and we're looking forward to full year of operations for both projects. On the EPIC Crude side, specifically, we're probably seeing something a bit more flat going forward, given that we guided in a different commodity price environment. And on the EPIC Y-Grade side, as Tom alluded to, we do see some growth there. But we're excited to have these pipelines now at the full year of our projections and we're excited about what those pipelines have for us in the future.

[Amar Sheth:]

Okay. And then, I guess, my follow-up question. I know you guys do not want to discuss the recent offer made by the majority shareholder. But we are a relatively small minority shareholder. And I was just wondering, are we going to be given an opportunity to vote on the transaction once -- if there is a transaction, or an offer made, a formal offer made?

[Robin Fielder:]

Hey, Amar, I appreciate the question and your interest in this. Just a quick recap, as we mentioned before, we obviously received a take-private proposal from Chevron on February 5 and have delegated the evaluation to our Conflicts Committee. As I mentioned in my prepared remarks, is our three independent directors. And so, while that's ongoing, it's really difficult for us to comment on anything. And just as a reminder there's really no guarantee of transaction will complement and conclude as well. I don't know that we can guide you on anything else beyond that at this point.

[Amar Sheth:]

Okay. Thank you. But you're not sure if minority shareholders will be given an opportunity to vote.

[John Reuwer:]

I don't think we can comment beyond that.

[Robin Fielder:]

Yes. We're just getting this process kicked off.

[Operator:]

This concludes our question-and-answer session. And I would like to turn the call back over to Robin Fielder for any closing remarks.

[Robin Fielder:]

Yes. Thank you, Ely. I just wanted to say thank you all again for your continued support. And just, please, stay safe and help you out there. Have a great weekend.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.