Summit Midstream Partners, LP
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Welcome to the Q4 2020 Summit Midstream Partners, LP Earnings Conference Call. My name is Rebecca and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I'll now turn the call over to Ross Wong, Senior Director of Corporate Development and Finance. Ross, 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 & Presentations section or Quarterly Results section. With me today to discuss our fourth quarter 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.

[Heath Deneke:]

Great. Thank you, Ross. Good morning, everyone. Thanks for joining us for our fourth quarter 2020 earnings call. Earlier this morning Summit reported fourth quarter 2020 adjusted EBITDA of $61.8 million, which was in line with our expectations and represented an improvement of approximately $2 million over our third quarter results. Our quarterly financials were influenced by a variety of factors including strong performance from our Utica in Ohio Gathering segments, including the return of more than 50 million a day of production net to Summit, which was shut in the third quarter. We also brought on eight new wells that were connected to our Wilson liquid system. And we've continued to gain cost reductions across our back office and field operations. Our Utica and Ohio Gathering segments, each experience quarter over quarter volume increases of more than 20%. And then, in the aggregate, produce an incremental $2.6 million of adjusted EBITDA relative to the third quarter of 2020. For the full year Summit generated $252.1 million of adjusted EBITDA, which was within our guidance range that we established in July, that reflected the implications of the COVID-19 pandemic, the lower commodity price environment and the slowdown that we expected in customer activity across our footprint. We continue to generate a substantial amount of cash from our primarily fee based low CapEx business. And during the fourth quarter, we generated $37.4 million of free cash flow based on $51.8 million of cash flow from operations, $7.8 million of capital expenditures and a $6.6 million cash investment in Double E. In total for the year, we generated approximately $135 million of free cash flow, which enabled us to pursue strategic and creative opportunities for our stakeholders, as demonstrated by the theories of liability management related transactions that we executed throughout last year. Given our portfolio of fixed fee contracts, our continued emphasis on financial discipline and extracting operating efficiencies, and we're very well positioned to continue to generate a meaningful amount of free cash flow going forward, even if there's an extended challenging macro environment.

[Marc Stratton:]

Great. Thanks, Heath. And good morning, everyone. I'll begin with a discussion around the segments that comprise our core focus areas. Starting with the Utica shale, the SMU system averaged 443 million cubic feet a day in the fourth quarter, and segment adjusted EBITDA totaled $8.7 million, which was up $1.3 million over the third quarter of 2020. A 25.9% quarter-over-quarter volume increase was primarily driven by seven new wells that were turned in line in September, and the return of 22 million a day of temporarily shutting production relative to the end of the third quarter. There were 10 ducks in the Utica shell segment at the end of 2020. And we expect all of them to be turned in line in 2021, including the new four well path in the next few weeks.

[Heath Deneke:]

Great. Thanks, Mark. Look, I'm really proud of the transformation that the Summit team was able to implement in 2020. This was achieved through a sequence of complex and challenging transactions. It all started with the GP Buy-In transaction in May and closing with a bank amendment and a cash tender for our Series-A Preferred Units in December. As a result of the 2020 activities, we've been able to fully align our governance structure with public unitholder interests and we now have a fully independent Board of Directors. We've also simplified our balance sheet, while generating a significant amount of value for our stakeholders, again, by taking a strategic, yet aggressive, approach to liability management. Furthermore, we achieved several critical milestones on Double E, that not only helped ensure that the project will be completed on time, as planned, but also with the financing, we're now able to do that without further burdening SMLP’s balance sheet. While our new well activity behind our systems are projected to be at unprecedented lows in 2021, we do believe that this year will likely represent the bottom of the cycle. We're now beginning to see some signs that point to what could be a substantial recovery of new well activity late in 2021 and early 2022 behind our systems. And I think those are certainly being spurred as a result of higher commodity prices and really, an overall improvement in capital markets. We're committed, as always, to providing transparency, as I said before, with our stakeholders. And we also believe that our 2021 adjusted EBITDA guidance of $210 million to $230 million is very realistic and achievable. We will remain focused on operating the business under our core guiding principles, which have guided our success in the past, and we will continue to focus on those things that we can control, while also employing strategic and financial discipline. Addressing our 2022 debt maturities and progressing Double E from a development project to an operational asset by year-end, are certainly two of the biggest priorities for the year. And look, I'm very confident that we have the right people, the tools and resources in place to achieve those goals. So I'm extremely proud at the end of what the Summit team has accomplished this past year. I'm even more excited for what lays ahead. So with that operator, I'd like to turn the call over for questions.

[Operator:]

And our first question is from James Carreker from U.S. Capital Advisors, your line is open.

[James Carreker:]

Hi, thanks for all the prepared commentary. Understanding that you don't want to give 2022 guidance, can you talk a little bit about your expectations for Double E and the EBITDA contribution once it's online?

[Marc Stratton:]

James, appreciate the question. Obviously, our near term focus here is bringing the financing in place, which as we mentioned, will really reallocate capital from what would have otherwise been capital spent on a small piece balance sheet to third-party bank financing. So we're super excited about that. The project continues to move forward in a very efficient manner. We do expect to bring the project down here by the end of 2021. And I would think about the go-forward EBITDA contribution from that project is somewhere in a 7 to 7.5 times build multiple. Obviously, we've laid out the $425 million gross development budget for Double E, 70% of that is roughly $300 million. So I think I'm probably pointing to those metrics.

[James Carreker:]

That's helpful. And I know this is an accounting question, but I think the book value per share, according to your financial statements, is somewhere north of about $120 per share, are there any write downs or impairments that could be expected in 2021 beyond what you've already announced?

[Marc Stratton:]

Yes, James, the answer is no, we feel very good about where the book value of our assets is today. It's something that we look at every quarter, and run an analysis on every quarter, based on undiscounted and discounted cash flows from those assets and the cash flow that those are projected to throw off over time. So I think we've taken some impairments over the last couple of years, as needed. But I think we feel very good about the value of our assets, where they sit today.

[Operator:]

Next question is from Elvira Scotto from RBC Capital Markets, your line is open.

[Elvira Scotto:]

Hey, great. Thanks and good morning, everyone. What we're hearing from the public producers are that for the most part, they're not really increasing CapEx, they're not really focused on production growth. However, it does seem like the private companies may be ramping production. Can you provide some color there? And then just remind us, what percent of your producer customers are private?

[Heath Deneke:]

I think, I don't have an exact percentage, but we do have a fair amount of private operators across the footprint. And I think what I would -- what I had to do, we are seeing probably a little more activity out of the private side than we are in the public operators. But again, that really across the board, I think, as you can see in our guidance, our well counts are down very significantly across the footprint. We do think that is somewhat of a reflection of the environment that we're leaving 2020 into 2021, with the very weak commodity price outlook at the time. I think we just saw a lot of slowdown, if you will, in activity levels. I think now that the commodity prices having rebounded in January, February, we are starting to see and have more conversations that point to activity potentially picking back up as we head into 2022. And we are seeing that from some of the public operators, as well. But certainly in 2021, I'd probably say there's the activity that we have, there's probably a little bit more of that coming from the private side.

[Elvira Scotto:]

Thanks. And then, my second question is on the Williston Basin, your producer customers are there, how are they positioned with respect to takeaway and DAPL? Do they ship on DAPL? And do they have contingent plans that DAPL were to shutdown?

[Heath Deneke:]

Yes. So our shippers do deliver in the DAPL, but we think there's adequate takeaway for that, if there was a long term shutdown of the DAPL pipeline, we just really don't anticipate that being an issue that would curtail production behind the footprint.

[Marc Stratton:]

Elvira, I might also add, we do have interconnects into Enbridge pipeline systems up there, as well as crude by rail terminals throughout the throughout the base. And so, obviously, we've been operating in the Williston for years, certainly well before DAPL came online. And we had one interconnectivity to crude by rail at that point in time. So to the extent that were taken out, again, we do have alternative pipeline interconnects and rail terminals that we can interconnect into, as well.

[Operator:]

We have no more questions at this time. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.