Summit Midstream Partners, LP
Q2 2020 Earnings Call Transcript

Published: 7 Aug 2020

[Operator:]

Welcome to the Q2 2020 Summit Midstream Partners LP Earnings Conference Call. My name is Vanessa and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Ross Wong, Senior Director of Corporate Development and Finance. Mr. Wong you may begin.

[Ross Wong:]

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 www.summitmidstream.com where you will find it on the homepage Events and Presentations section or Quarterly Results section. With me today to discuss our second quarter of 2020 financial and operating results is Heath Deneke, our President, Chief Executive Officer and Chairman; 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 2019 annual report on Form 10-K which is filed with the SEC on March 9th 2020 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 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 Heath.

[Heath Deneke:]

Great. All right. Thanks Ross and good morning everyone. Really thank everyone for joining us on our second quarter 2020 earnings call. So earlier this morning Summit reported second quarter 2020 adjusted EBITDA of $64.6 million and distributable cash flow of $42.7 million. These results were in line with our expectations and reflected the impacts of the challenging market environment that I highlighted on our first quarter earnings call in early May. Summit generated free cash flow of $26.3 million for the quarter based on $35.2 million of cash flow from operations and $8.8 million of cash paid for capital expenditures which underscores the overall resilience of our diversified assets our largely fee-based revenue model and modest capital expenditure needs. This strong cash flow enhanced our financial flexibility and enabled us to pursue certain balance sheet-enhancing initiatives such as the open market debt repurchases which we'll discuss in later detail on the call. The oil and gas landscape certainly remains challenged. We've got ongoing depressed commodity prices, distressed capital markets and of course the seemingly never-ending coronavirus pandemic. In response to COVID-19, we implemented changes across our organization that enable our employees to work safely and efficiently while maintaining business continuity during the ongoing pandemic. Some of these changes include initiating a corporate work-from-home program while improving our IT infrastructure so we can support -- better support working remotely and adjusting our work policies and procedures to comply with social distancing and best practices to help further mitigate the spread of the virus. The health and safety of our employees and the continuity of our business operations are top priorities. And we are prepared to continue operating in this manner until the impact of the virus subsides. While there still is a lot of uncertainty regarding how long the pandemic will last, I am confident that the changes we have implemented will allow us to operate effectively in this environment for the foreseeable future. During the second quarter, we experienced decreased drilling activity as we expected. We also had deferral of well completions and of course temporary production curtailments of some uneconomic production across several of our operating areas. Production shut-ins have had a significant impact on the business and really in the aggregate have accounted to approximately 14000 barrels per day of liquids and around 46 million a day of natural gas volumes being shut in across our systems in the quarter. These temporary shut-ins were most prominent in the Williston and DJ Basins, but we also experienced meaningful shut-ins behind our Utica Shale segment, which really started in mid-June as customers deferred production to attempt to capture higher natural gas prices that are forecasted later in the year. Our Ohio Gathering joint venture also had an average of approximately 70 million a day of gross condensate and wet gas volume shut-in during the quarter. Although second quarter natural gas volume throughput on our operated systems increased by nearly 9% relative to the first quarter, our growth was driven solely by the performance of our Utica Shale segment, which was our only reportable segment that experienced an increase in quarter volume throughput. Now we expected the lion's share of production curtailments to occur through May. However, material shut-ins have prolonged in certain areas and still exist behind some of our systems, which I will get into further detail later on in the call. So the second quarter narratives for assets in operating areas are bit -- so why don't I provide a few details here by reportable segment. So starting with our core focus areas, our Williston Basin segment experienced multiple headwinds throughout the quarter and in fact several challenges that frankly continue to persist. Our customers looking in curtailing production in April and continued to maintain a substantial amount of shut-in volumes through the entire quarter, which adversely impacted our average liquids and gas throughput volumes by approximately 14,000 barrels and 2.4 million per day of gas, respectively. While the peak of these shut-ins occurred in May, our liquids volume throughput continues to be impacted by curtailed production in the region. And also the market backdrop of the Williston Basin has continued to be particularly challenged as evidenced by two of our predominantly Bakken exposed customers having recently filed for bankruptcy in the past few months. I am pleased to announce though we have recently amended those contracts for those customers, which would become effective once those companies emerge from bankruptcy. While the specific contract terms differed, I think the key aspects of both contract amendments were that we extended the term of the acreage dedication and in exchange we did give some modest concession on gathering fees. But overall we expect the impact of these amendments to have positive implications for both Summit as well as our customers by providing the lower fees to help incentivize incremental volumes in the near term, while providing more long-term cash flow as well as helping margins for the business. Uncertainty regarding the legal and regulatory environment has also been a theme recently highlighted by the ongoing legal proceedings associated with the Dakota Access Pipeline, which is a key pipeline to transport approximately 570,000 barrels of crude out of the Bakken. Look while we viewed the D.C. Circuit Court decision earlier this week to stay the lower court's ruling to cease DAPL operations while the revised EIS is pending, we view that as a very positive development. However, to the extent that DAPL will eventually -- to be shut-in permanently it would certainly put significant pressure on in-basin commodity prices, which could adversely impact production and development activity across the basin. For Summit in particular, we do deliver some of our oil gathering on our systems into DAPL but if operations were to cease, we do believe that there's sufficient physical connectivity and capacity to move crude oil downstream or be our other downstream connections, which include and produce North Dakota Pipeline System, Crestwood's, COLT rail hub and Global Partners, Columbus Rail Terminal. So on a positive note I do think that the in-basin pricing has begun to stabilize to some degree. And we are also optimistic and beginning to see some improvement in commodity prices and those prices approaching levels that potentially could facilitate some economic drilling and completion activity within our footprint in next year. We do expect also that two of our large customers to emerge from bankruptcy in the coming months. And when they do, we believe they'll be better positioned with better balance sheets and ability to fund drilling activities as those prices do improve. In the DJ, our second quarter segment performance was impacted by similar patterns in customer activity as Williston. However, the curtailed production has come back online much more quickly in the DJ. We had approximately nine million a day of shut-in production behind our DJ system for the quarter with a modest amount shut in during April and a monthly high of approximately 17 million a day shut in during May. The monthly shut-in production has come back online as I mentioned and our natural gas throughput volumes have averaged 25 million a day in July and an average of 20 million a day overall in the second quarter. Although production shut-ins have mostly reversed, we still expect a deferral of drilling and well completion activities from several DJ Basin customers in the second half of 2020. We currently have 13 drilled, but uncompleted wells in inventory and six wells that have been completed, but not yet turned in line behind our infrastructure that will serve as a catalyst for increased production in the future. We also had planned maintenance which occurred during the quarter. We took our Hereford Plant down for a few days for planned maintenance and that did have some adverse impacts to our results for the quarter. But we don’t expect these issues to continue to impact volumes for the rest of the year. In the Permian segment, we also experienced some shut-ins during the quarter, roughly -- approximately seven million a day of natural gas volumes were taken offline. Most of those were front-end loaded however and volumes in July averaged close to -- averaged around 37 million a day versus an average of 32 million a day for the full quarter. Permian customers have been quicker to bring production back online relative to the Williston and DJ. And we expect curtailments in this region to have really no impact for the second half of the year. On the commercial front, we were able to extend a key contract with one of our customers, which certainly added incremental throughput which helped to some degree offset the effects of curtailment for the quarter. So, despite the shut-ins that we did experience, our Permian Basin segment actually generated record quarterly results. And we expect the performance for really all of our Permian Basin segments to be in line with what we anticipated in our original 2020 financial guidance. Moving on to Double E, while we're in the Permian, Double E continues to be a focus for Summit. And it certainly remains to be a critical infrastructure project for the Northern Delaware that will ultimately help fulfill demand for residue gas takeaway. So, during our last earnings call, we commented that there could be some positive implications to Double E to the project costs associated with Double E due to the general slowdown in the pipeline construction activity. And I'm pleased to say that we have been able to capitalize on those softer market conditions and have been able to lock in approximately 80% of the project's cost via contracts. So, as a result, we now expect that the project will come in roughly 10% to 15% below the original $500 million budget that was developed at FID back in June of 2019. Also, very pleased with how the project is progressing to the regulatory front, we continue to expect to receive our FERC-7(c) certificate in the third quarter. And I'm also pleased with the progress that we're making towards executing on our third-party financing plans, which when consummated we believe will cover the majority of the remaining project costs for Summit. Moving on to the Utica Shale, strong second quarter performance was driven primarily by the volume throughput from seven wells that were connected to our system in mid-March, including a 5-well pad that continued to outperform expectations and averaged more than 160 million a day, while online during the quarter. There were also six wells that were turned in line behind the TPL-7 Connector Pipeline during the quarter, which added incremental volumes, but did have a smaller impact on segment adjusted EBITDA. So offsetting these results however, a key customer on the Utica Shale system did shut in some production on two pads in mid-June, in an attempt to wait for better pricing to return in the coming months. These actions were not anticipated but we now expect these pads to remain offline until at least the fourth quarter of 2020 based on recent conversations we've had with the customer, as well as the latest gas price outlook. However, on a positive note, I think the deferral of production will strengthen our 2021 segment outlook. And furthermore, we recently amended a contract with one of our large customers to provide an incentive to accelerate drilling behind our SMU system, which we expect to result in at least 13 new well connections in 2021 and 2022 or across 2021 and 2022. In our legacy areas, they continue to provide steady performance with very low capital requirements. We generated nearly $35 million of unlevered free cash flow during the second quarter. Unlike our core focused areas, our legacy areas were not materially impacted by production curtailments. And also outside of a few workovers in our Barnett system, there was really no new upstream activity to offset natural production declines during the quarter. We do have – we expect to see some positive implications in the third quarter, as we brought nine new wells online in our Marcellus Shale system in July. So on July 23, we announced a revised 2020 adjusted EBITDA guidance range of $250 million to $260 million, which was down from the low end of our previous guidance range of $260 million to $285 million. So this range is now reflective of both the current and expected market environment. It certainly includes the experienced shut-ins in our Williston Basin, the Utica Shale and Ohio Gathering segments, as well as our best efforts at projecting the ongoing shut-ins that we continue to experience. And it also reflects the new and amended commercial agreements that we referenced earlier in the call. In regards to capital expenditures though, we are maintaining our 2020 capital expenditure guidance in the range of $30 million to $50 million. So going beyond our operating results, the second quarter really marked a very important quarter for Summit, as we made substantial progress on our overall repositioning efforts. So a reminder, we closed the GP buy-in transaction, which allowed us to suspend our common and preferred distributions and reallocate close to $76 million per year of cash towards delevering the balance sheet. We also increased our per-unit value by the retirement of 16.6 million of outstanding common units. We reconstituted a new Board, which is now controlled by independent directors, who are fully aligned with our common unitholders. We also commenced a series of liability management initiatives that have positively impacted our balance sheet and created a lot of value for our stakeholders. In late May, we commenced our open market repurchases of our senior notes and were able to achieve significant discounts to par value. This debt repurchase initiative has been successful in a relatively short period of time. And as of early August, we've been able to retire approximately 138 million of par value bonds at a weighted average discount of 42%, spending approximately $81 million in cash to do so. For certain other way, we were able to create approximately $57 million of additional equity value for our common unitholders by reducing net debt at a substantial discount to the face value of the debt. This reduction work presents approximately 2/10 of a turn of lower leverage. So then on June 18, we also launched an offer for preferred investors to allow them to exchange their Series A preferred units for common units. That exchange offer closed last Friday, and I'm pleased to announce it resulted in the retirement of 62.8 million in face value of the Series A preferred units or roughly 21% for the preferred outstanding units at an 84% discount to that face value. Retiring these preferred units helped further simplify our capital structure. It eliminated a portion of our accrued unpaid preferred equity distributions and it generated incremental common equity value of approximately $53 million based on the exchange rate and the common unit price at the closing -- at the day of closing. So in the aggregate, since closing the GP buy-in transaction in late May, we've been able to create approximately $110 million in equity value for our common unitholders through our liability management activities. On a per-unit basis, including the 12.6 million new common units that were issued as part of the preferred exchange offer this equates to nearly $2 of value accretion per common unit outstanding. So look while we've made substantial progress on enhancing our balance sheet in short order, there's still a considerable amount of work remaining ahead of us to further reduce our leverage to our long-term target of sub-4x. So in the near term, we are continuing to focus on that initiative. We're also focused on obtaining third-party financing for the majority of our Double-A capital commitment. And we'll continue to work with our revolving credit facility lenders to develop the tools and additional flexibility that we need to optimize our balance sheet and efficiently operate our business. We will continue to execute on the liability management strategy over the coming quarters and we will continue to explore really all options including potentially a full retirement of the BPPO and an extension of our 2022 bond maturities as we kind of get closer into the year. And we also continue to pursue potential asset divestitures and joint ventures that to the extent they can generate incremental value. And we'll continue to do that in both of our legacy and our core focused areas. So with that, let me turn the call over to Marc to discuss our financial results.

[Marc Stratton:]

Great. Thanks, Heath, and good morning everyone. I'll begin by walking through the segments that comprise our core focus areas. So starting with our Utica Shale segment, the SMU system averaged 416 million cubic feet a day in the second quarter and segment adjusted EBITDA totaled $10.7 million which was up by 80% or approximately $4.8 million from the first quarter of 2020. This substantial increase in quarterly segment adjusted EBITDA was primarily due to production from seven wells that were connected to our system in mid-March which included volumes from the 5-well pad that produced an average of more than 160 million cubic feet a day while online. We also had six new wells come online behind our PPL-7 Connector Pipeline during the quarter. As Heath mentioned, our customers shut in production on two pads in mid-June and plans to keep those wells offline until late this year when natural gas prices are expected to be higher. These shut-ins included the 5-well pad that had outperformed our expectations and was included in our previous guidance. So this was one of the driving factor for lowering our 2020 adjusted EBITDA guidance range to $250 million to $260 million. Turning to our Ohio Gathering segment adjusted EBITDA totaled $7.5 million for the quarter, which represented a 5.4% decrease from the first quarter, primarily due to lower volume throughput, partially offset by lower operating expenses. Gross volumes in the second quarter were down 11.5% from last quarter due to average production curtailments of approximately 70 million cubic feet per day and natural gas production declines. There were six new wells connected in the condensate window in May which partially offset shut-in volumes. During our last earnings call in early May, we noted that 110 million cubic feet a day of gross volumes were shut in upstream of the Ohio Gathering system. We expected those shut-in volumes to return by the end of June. However, based on the latest discussions with customers, we anticipate that a material amount of those shut-in volumes will remain offline until at least late in the fourth quarter. This softened outlook for our Ohio Gathering segment was another factor for leading to lower revised financial guidance for the year. In our Williston Basin segment adjusted EBITDA of $12.7 million was down by $3.5 million relative to the first quarter, primarily due to a 21.4% decrease in liquid volume throughput to 76,000 barrels per day which was mainly caused by production shut-ins in natural production declines. The Williston was one of our segments most heavily impacted by production curtailments and there were approximately 14,000 barrels per day of liquids offline for the quarter. Although some curtailed production returned late in the quarter there was still more than 12,000 barrels a day of liquids volumes shut in for June which was down from 17,500 barrels a day offline in May. There were also a modest amount of production shut-ins behind our natural gas system, but to a lesser extent. The contract amendments with two of our Williston Basin customers that Heath highlighted were not signed until just recently and had no effect on our second quarter results. We expect both contracts to become effective in the third quarter of 2020. We expect the Williston Basin environment to be challenging for the second half of the year and there are several dynamics that have affected our expectations, including prolonged production curtailments, bankruptcy filings of certain customers and heightened uncertainty regarding the legal and regulatory landscape. We have approximately 34 DUCs in inventory and eight wells that have been completed but not yet turned to production behind the Williston Basin systems that can spark production growth when customers decide to increase activity. DJ Basin segment adjusted EBITDA totaled $4.3 million in the second quarter a 26.6% decrease from the first quarter, primarily due to a 37.5% quarterly decrease in total natural gas volume throughput to 20 million cubic feet a day. This segment was hit particularly hard by production shut-ins during the quarter and our customers curtailed an average of approximately nine million cubic feet of natural gas production. We also had planned maintenance that took our Hereford plant offline for four days during the quarter. Unlike the Williston Basin, we've recently seen the return of a significant amount of DJ Basin production that was shut in behind our infrastructure during much of the second quarter. July volume throughput for the segment averaged approximately 25 million cubic feet a day. And while we continue to expect deferrals of well connections our customers are contemplating connecting 19 new wells in the second half of the year. Our customers currently have 13 wells in DUC inventory and six completed wells that have not yet been turned in line. It appears that we are likely through the trough period for the DJ Basin activity. However, as we've already seen this year the macro backdrop is volatile and the environment can change rapidly. The Permian Basin segment adjusted EBITDA was another quarterly record and totaled $1.8 million in the second quarter, an increase of approximately 15.6% relative to the first quarter, primarily driven by margin mix an extended contract and improvements in the natural gas and NGL pricing. Although, average quarterly volume throughput of 32 million cubic feet a day was roughly equivalent to the first quarter throughput volumes steadily improved over the quarter and average daily volume throughput increased by approximately 36% from April to June. There were a limited amount of production shut-ins in April, but they have abated. And based on customer discussions we're not expecting any additional production curtailments for the remainder of the year. Our Permian Basin segment experienced a volume uptick of approximately nine million cubic feet a day in May as a result of an extension to the term of a customer contract. And we expect those volumes to continue for the remainder of the year. Although, there was a variation in operating results for our Permian Basin segment for the quarter, we expect the remainder of the year to be more stable. All wells have been connected that, we were expecting for this calendar year and our overall outlook for the Permian Basin segment remains unchanged relative to our original 2020 financial guidance. There are also two wells that a customer has drilled and completed behind our Permian system, but timing of when those will be turned in line is uncertain, so they are not included in our 2020 guidance. Our legacy areas which include the Piceance Barnett and Marcellus segments generated $35.1 million of combined segment adjusted EBITDA in the second quarter and continued to generate strong unlevered free cash flow of $34.9 million based on $278,000 of combined capital expenditures incurred in the period. All cash paid for capital expenditures in the second quarter for these three segments was for maintenance CapEx. And our legacy areas continued to provide predictable cash flow and stability for our portfolio of diversified assists. Although, our anchor customer in the Marcellus Shale did not connect any new wells in the second quarter it did recently connect nine new wells in July which should serve as a catalyst for the legacy areas in the third quarter. This customer continues to have nine DUCs in inventory, but we don’t anticipate those wells to be completed or come online until early 2021. Now turning back to the partnership, SMLP reported second quarter 2020 net income of $56.7 million, which was positively impacted by a $54.2 million gain on early extinguishment of debt, adjusted EBITDA of $64.6 million and distributable cash flow of $42.7 million. Capital expenditures totaled $8.8 million in the second quarter of 2020 a decrease of 52.4% compared to the prior quarter and included maintenance capital expenditures of $2.4 million. Capital expenditures were primarily related to pad connection, compressor station expansion and wide-looping projects in our Williston DJ and Permian segments. We continue to employ financial discipline and still expect total capital expenditures within the $30 million to $50 million range for the full year of 2020. Regarding our Double E project during the second quarter SMLP made cash investments totaling $21.7 million with respect to its 70% interest in Double E. And as of June 30 all $80 million of the redeemable preferred commitment from PPG had been issued. Only $2.8 million of SMLP's cash was utilized to fund Double E capital calls in the quarter because the majority of SMLP's obligations were funded with net proceeds from the preferred commitment. As Heath mentioned the Double E project team continues to work diligently to find ways to reduce costs, while maintaining a safety-first work environment and in-service date target of the third quarter of 2021. Approximately 80% of Double E's development costs have been locked in via service contracts and purchase orders at favorable discounts relative to the original budget. And as a result the estimated gross costs to complete the project have decreased from $500 million which was set at FID in June of 2019 to approximately $450 million currently. Accordingly SMLP's 70% share of Double E development capital has been reduced from $350 million to $315 million currently of which just over $200 million is left to be funded. We continue to actively pursue a third-party financing alternative for a substantial amount of if not potentially all of SMLP's remaining Double E capital obligations. We are targeting to have third-party financing secured concurrent with the receipt of the FERC 7(c) certificate which is still expected in the third quarter of 2020. And we'll provide an update to the market once that is secured. We recently expanded the range of expected 2020 capital expenditures related to our equity investment in Double E from $10 million to a range of $10 million to $20 million in order to accommodate any potential delays with FERC 7(c) certificate or third-party financing. While we expect to secure both the FERC 7(c) certificate and third-party financing in the third quarter, we felt it was appropriate to widen our range to include a potential delay since we are now one-third of the way through the third quarter and neither have been finalized. We had $733 million outstanding under our $1.25 billion revolving credit facility as of June 30 2020 and approximately $191 million of available borrowing capacity due to financial covenant limitations and a $4.1 million undrawn letter of credit. In connection with the GP buy-in transaction, we closed on a $35 million term loan from ECP that was outstanding at quarter-end. We used proceeds from the ECP loan and cash flow from operations to commence repurchases of our unsecured debt in the open market during the quarter. And we repurchased approximately $132 million face value of our senior notes at a weighted average discount of 42% for approximately $76.7 million in cash resulting in a $668 million aggregate balance of our senior notes as of June 30. Subsequent to June 30, we repurchased an incremental 5.9 million face value of our 2022 senior notes at an average discount of 34% for approximately $3.9 million of cash. We also launched an exchange offer in mid-June which ultimately gave holders of our Series A preferred units the opportunity to exchange each preferred unit for 200 common units. That transaction settled on July 31 and resulted in the retirement of 62,816 of the 300,000 outstanding preferred units and the issuance of approximately 12.6 million common units subject to applicable withholding taxes. The DPPO receivable which is not a line item on our consolidated balance sheet as a result of inter-company eliminations continues to remain outstanding because it is the only mechanism available for meeting the interest coverage covenant requirement of S&P Holdings nonrecourse term loan. As previously discussed, we fulfilled second quarter requirements related to this nonrecourse term loan and S&P Holdings is compliant with all of its obligations. We may consider a full retirement of the DPPO once we no longer need it as an avenue to service this nonrecourse term loan. We also had $37 million of unrestricted cash and $5 million of restricted cash on hand at the end of the second quarter. Total leverage at the quarter-end was 4.9 times compared to a maximum limit of 5.5 times. And we expect leverage at year-end to be highly dependent on the results of our continued liability management initiatives. And with that, I'll turn the call back over to Heath for closing remarks.

[Heath Deneke:]

Great. Thank you, Marc. Look the second quarter, again, is just another reminder of just how rapidly things can change in our industry. And while, some aspects of the market environment have improved, others have worsened. And we do expect the challenging backdrop to continue for the rest of the year and into 2021. We will remain transparent in the outlook for our business as the year progresses, as we continue to collaborate with our customers and our business partners. We'll also continue to focus on maintaining operational excellence across our entire organization, despite the added challenges associated with COVID-19. And we remain committed to further controlling our cost and minimizing our capital expenditures, while operating safely, responsibly and efficiently. Despite the difficult market environment, we have been able to make good progress on improving our balance sheet and our overall financial flexibility. And we will continue to execute on our comprehensive liability management strategy and continue to pursue other value-enhancing activities, which also can include asset sales and joint ventures of our legacy and core focus assets. So I can assure you that our management team is working tirelessly on all of these efforts and we're taking very proactive measures to pursue really all options that we can to maximize value for our unitholders. So with that, operator, I'd like to open the call for questions.

[Operator:]

And thank you. We will now begin our question-and-answer session. [Operator Instructions] And we have our first question from Elvira Scotto. Please go ahead. Your line is open.

[Elvira Scotto:]

Hey. Good morning, everyone. I really only have two questions. My first question is, you talked about some of your producer customers' bankruptcies and then you talked about just overall producer bankruptcies industry-wide. Can you provide a little more detail on your customer credit quality and what protections you may have in place in the case of producer bankruptcies?

[Heath Deneke:]

Yes, sure. Hey, Elvira. This is Heath. I'll elaborate a little bit more. I think, look, virtually really all of our material contracts that we have with customers, we do believe are protected just via the dedication language. And as we've seen recently in some of the proceedings, gathering contracts or dedications that are crafted the right way, we think withstand rejection in the bankruptcy process. A lot of that is fact-specific and it matters how the language is crafted in the agreement. But we've done a pretty detailed review across our contract structures and we feel confident that we have the adequate dedication language in virtually all of our agreements that provide us that protection. But usually, my experience, both at Summit and previously at Crestwood and El Paso is that, when customers go into a bankruptcy-type proceeding, there's always opportunity to resolve any issues, particularly if your fees are either above-market or if your fees are at a spot that maybe are prohibiting some incremental development. We've been successful in the case of the two bankruptcies in the Bakken to really reach, what I would consider, win-win restructuring of the fees. That's been my experience. I think to the extent you can resolve it outside of the courts, I think, that's always the preferred path for both the customer as well as the provider. But if we are forced and frankly there's not what we perceive to be a win-win proposition for the customer and for the provider to restructure agreement then we're prepared to defend the language and think we can be successful avoiding to pay rejection in the context of a bankruptcy.

[Elvira Scotto:]

Okay. Thank you. That's helpful. And then just my next question is just around asset sales. You had talked about asset sales in the past and I know things may have slowed given the environment we're in with COVID. But just wondering if there's any update there on any discussions you're having, what you're seeing out there in terms of asset type for assets? Just any commentary would be helpful.

[Heath Deneke:]

Yes, look, I'd describe it generally as slow. I think there continues to be a large degree of interest in our assets particularly those more in the core areas. But I think what we're seeing here, I think people fundamentally get it; they understand that we're in real good areas of really good rocks. They look at the systems that have largely been built out and have a lot of operating leverage without a lot of capital requirements going forward. So I think all of that screens well. I think what we're dealing with at this red-hot moment is really just the question marks around, okay, so when will the pandemic end? What kind of longer-term implications is it going to have on demand? How are the producer customers? What does the near-term activity levels look like? And even in some cases particularly where federal lands are impacted, there's some question mark around, how the upcoming election impacts activities on some of those federal lands? So what I'd say is, I think people fundamentally look at some of the asset positions that we're looking to sell as, hey, these are great assets in great areas. But I just think the turn of the near-term uncertainty has folks a little bit skittish in terms of pulling the trigger and locking in on a deal, but I do feel like we've made progress. It seems like some days we're two steps forward and then something like a DAPL order comes out and people kind of pause again and say, well, is this market just too uncertain right now to try to underwrite a deal? But look we're going to be very persistent about it. Again, we're not in a position that we have to sell an asset. We're having success on our liability management program; we were able to defer a lot of our operating cash flows to delever. But if the right deal comes along and I believe it will I think we're as time persists here I think we're getting more comfortable in the operating environment that we're in. We're getting -- we'll start getting more insight as to what 2021 is going to unfold to these positions. And we're going to keep at it and if the right bid comes along and then we're certainly positioned to capitalize on it to the extent it creates value for the shareholders.

[Elvira Scotto:]

Great. Thank you very much.

[Heath Deneke:]

You bet.

[Operator:]

Thank you. [Operator Instructions] And I see no further questions in the queue at this time. I will now turn the call over to Mr. Heath Deneke for closing remarks.

[Heath Deneke:]

Great. Thanks operator. Thanks everyone again for joining us on the call. We look forward to continue to update everyone on our progress both initiative operating results and some of the strategic initiatives that we have ongoing. So, thanks again for the time and stay tuned.

[Operator:]

And thank you ladies and gentlemen. This concludes our conference. Thank you for participating. You may now disconnect.