Summit Midstream Partners, LP
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Welcome to the Third Quarter 2015 Summit Midstream Partners LP Earnings Conference Call. My name is Christine, 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. Please note that this conference is being recorded. I will now turn the call over to Mr. Blake Motley, you may begin.

[Blake Motley:]

Thanks operator and good morning everyone. Thank you for joining us today to discuss our financial and operating results for the third quarter of 2015. If you don't already have a copy of our earnings release, please visit our Web site at www.summitmidstream.com where you’ll find it on the homepage or in the News section. With me today to discuss our quarterly earnings are Steve Newby, our President and Chief Executive Officer; Matt Harrison, our Chief Financial Officer; and Marc Stratton our Senior Vice President of Finance. Before we start I'd like to remind you that our discussion today may contain certain 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 Please see our 2014 Annual Report on Form 10-K as updated and superseded by our current report on Form 8-K which was filed with the SEC on September 11, 2015, as well as our other SEC filings for a listing of factors that could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 will use the terms EBITDA, adjusted EBITDA, distributable cash flow and adjusted distributable 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. With that, I'll turn the turn the call over to Steve Newby.

[Steve Newby:]

Thanks Blake. Good morning everyone and thanks for joining us on the call today. Let me first begin by wishing everyone a happy early Veteran's Day. Approximately 15% of our workforces at Summit are veterans, so Wednesday is a special day for us. I'll begin today by discussing our third quarter highlights and then I will turn the call over to our Senior Vice President of finance Marc Stratton for additional details on our third quarter financial results. I'll end the call with additional comments on our outlook for SMLP for the balance of '15, the ongoing development activity to Summit investments and the decision by Energy Capital Partners to review strategic actions for some of their investments. Earlier this morning, we announced financial and operating results for the third quarter of 2015. For the quarter, we reported adjusted EBITDA of 48.5 million which was down 9% over the third quarter of '14 and down 9.7% relative to the second quarter of 2015. Adjusted distributable cash flow for third quarter of 2015 totaled 34.7 million which was down 8.8% over the third quarter of '14 and down 14.1% relative to the second quarter of '15. On October 22nd, we announced our third quarter 2015 distribution of $0.575 a unit which represented a 6.5% increase over the third quarter of 2014 and 8.9% increase over the second quarter of '15. This was SMLP’s 12th consecutive quarterly distribution increase since going public in September of 2012. Our distribution coverage for the quarter was 0.85 times and 0.99 times coverage for the first nine months of 2015. Consistent with previous guidance we expect our coverage in third and fourth quarters of 2015 to get below one times with an average for the year of approximately 0.95 times. Let me begin today's discussion by saying Summit's business model is built to withstand the current commodity cycle. Over 75% of our third quarter volume throughout is discovered by our MVC contracts through 2019. Our revenues are 97% fee-based, our balance sheet is strong and we have no plans or need to issue equity to fund our existing business in 2016. We're not immune from what is going on fundamentally in the industry, but we do believe we're well positioned. With that said, let's review the third quarter in detail. Our results in the third quarter of 2015 were influenced by the continued weak commodity price backdrop which resulted in volume declines relative to the second quarter of 2015 on all of our operating segments. If you recall back in March when we updated our '15 financial guidance, we expected volume decline on our asset base across the second half of this year based on price assumptions of $55 crude oil and $2.75 natural gas. We're obviously below those levels currently, but other than specific timing issues related to well completions on our Barnett and Marcellus systems, volume results have generally been in line with our '15 expectations. Summit’s anchor customers’ continued to be active during the quarter, albeit at a slower pace than previous quarters. Instead of trying well over its completion activities, in general our customers have chosen to defer completion work and as a result have accumulated a significant inventory of drilled and uncompleted wells which you'll hear me refer to as DUCs throughout the call. We expected that the inventory of DUCs which I'll walk you through in detail for each of our operating segments, coupled with ongoing drilling activities represent identifiable future volume catalysts that we expect will drive our volumes throughput beginning in the fourth quarter of this year and into the first half of next year. Other growth catalysts include the Stampede Lateral project on our Polar & Divide system which is covered by minimum volume commitments. We expect that project to be commissioned by the end of this year. The majority of SMLP’s third quarter natural gas volume decline versus the second quarter can be explained by our Barnett gathering asset, DFW Midstream, which declined from 356 million cubic feet a day in the second quarter to 325 million cubic feet a day in the third quarter. Multiple produces have been active throughout 2015, drilling new wells however completion activity has been delayed in the year which has led to natural production declines in addition to the declines we experienced with existing wells from these already active pads our temporary shut-in for drilling and completion activities. As a result DFW’s customers have accumulated a documentary of 28 wells which represent nearly 1 million cubic feet a day of initial production or more than 25% of our third quarter volume throughput. 13 of these DUCs from two separate customers are expected to begin production in November which we expect will drive a significant increase in 2015 exit volumes versus the 325 million cubic feet a day we averaged in the third quarter. 10 of the 13 DUCs were drilled from a single pad pipe that had 6 existing wells, one of which is one of the largest wells ever drilled in the Barnett with initial Piedmont production rate of 10 million cubic feet a day. Also six of the existing wells were offline in the third quarter as our customer initiated its completion activities. So, as you can imagine we are very excited to see the production potential from this large pad site contributing to our Barnett throughput beginning this quarter. These near-term well connects coupled with other DUC conversions that are scheduled to occur in the first half of '16 are expected to reverse our recent sequential quarterly declines and also will drive volume and cash flow growth at DFW in '16. Antero volumes in the Mountaineer Midstream system which originate from interconnections with Crestwood and Antero Midstream’s low pressure gathering systems averaged 457 million cubic feet a day in the third quarter, down from 542 million cubic feet a day in the second quarter. A substantial majority of their volume declines quarter-over-quarter were as expected or were expected as Antero has been pretty vocal about deferring completions on 50 wells in the region until certain takeaway pipelines exiting the Sherwood Complex are commissioned. We expect 32 of those 50 DUCs will be gathered by low pressure third-party systems that will ultimately flow into the Mountaineer system and that this inventory will drive volume and cash flow growth beginning in the first half of '16. In addition to natural declines, certain third-party operational issues upstream of the Mountaineer system created headwinds for volume throughput during the quarter. Most impact for the third quarter related to a third-party compressor station that delivers approximately 45 million cubic feet a day of natural gas on to the Mountaineer system it was down for the majority of July. We estimate that this third-party issue impacted our quarterly volume by approximately 12 million cubic feet a day. Volumes on our Grand River system averaged 591 million cubic feet a day in the third quarter, which is down 2.2% from the second quarter. Volume declines were primarily a result of Encana's continued lack of drilling in the area and slower drilling activity from WPX. As we have noted in the past, we are highly contracted on Grand River particularly with Encana and volume decline do not necessarily affect our cash flow from the year-end. However, we do have some direct commodity price exposure in the area with approximately 5% of our total gathered volumes in the Piceance subject to POP contracts that we have in our processing business. We also retained and monetized condensate drip as volumes move through our gathering system. Not only the third quarter period seasonally our lowest for condensate yields, but our realized price for condensate on the legacy Grand River system has affectively been cut in half versus the third quarter due to the decline in crude oil prices. Partially offsetting Encana and WPX production declines where volume growth from several other customers in the area, including Ursa and Black Hills would remain active in the Piceance in 2015. In fact in the third quarter, we executed an expansion agreement with Ursa that contemplates a cost effective solution recreating approximately 40 million cubic feet a day of additional throughput capacity on our system. This new capacity will be utilized by Ursa as it executes its drilling plan over the next two years to drill a minimum of 70 new wells the majority of which we expect to come on line in 2016. The Ursa expansion will add new MVCs to Summit’s portfolio of underpinnings and represents an encouraging sign that attractive commercial yields for both the producer and midstream provider are still getting done in the Piceance Basin. Our Bison midstream system which reflects the performance of our Williston Basin Gas segment gathered an average of 17 million cubic feet a day of associated natural gas production in the third quarter, which was flat with the second quarter of '15 and in line with our expectations. Drilling activity behind the Bison system has been negligible in '15. However, the throughput basin on the system has been resilient and has generally outperformed our decline sort of expectations. Our largest customer by volume in this area is under a POP contract and actually saw some price improvement on this front on a quarter-over-quarter basis as our utilizations in the third quarter were $0.72 an Mcf versus $0.61 an Mcf in the second quarter. The third quarter of 2015 represented the first full quarter of SMLP’s ownership of Polar & Divide the crude oil and produced water gathering system in the Bakken which was acquired from a subsidiary of Summit Investments in May of 2015. Just to remind everyone our financial and operating results for all historical periods discussed today include the as-pulled historical results for Polar & Divide. Total volume throughput on the Polar & Divide averaged 51,000 barrels a day in the third quarter down 4% from 54,000 barrels a day in the second quarter and up 54% from the 33,000 barrels a day in the third quarter of 2014. In terms of product mix, we averaged 43,000 barrels a day in crude oil in the third quarter, up 88% from the prior year and almost 3% quarter-over-quarter. Our produced water transportation volumes were 9,000 barrels a day in the third quarter down 11% from the prior year and down 20% quarter-over-quarter. Quarterly produced water volumes were impacted by Summit's construction activities on the Thomas Lateral, a produced water mainline that handles 2,000 to 3,000 barrels per day of throughput. This line was taken out of service in the third quarter for repairs as a result of this work which lasted for almost all of the third quarter we lost an average of 2,000 barrels a day of produced water throughput during the quarter. The line was commissioned in mid-October. Summit remained active in the third quarter executing its ongoing expansion projects to connect new pads primarily for Whiting and Savannah in addition to making significant headway on a Stampede Lateral project which we expect to commission by the end of '15. Our customers operated between four to eight drilling rigs during the quarter and at the end of the third quarter we had more than 50 DUCs identified upstream with the Polar & Divide system. We expect that these DUCs will begin producing in the fourth quarter and well into 2016 and it represent intangible and identifiable future catalysts for volume growth in the system. Furthermore, we're finalizing our construction activities related to the Stampede Lateral right now and we expect that project to begin generating cash flow up on its commissioning in the next two months. As a remainder, the Stampede projects are underpinned by a seven year minimum volume commitment contract. Overall, we remain optimistic on near-term growth drivers associated with the Polar & Divide system, namely the connection of the existing DUC inventory, ongoing drilling activities in the area and the Stampede Lateral project coming online. We continue to expect a significant level of cash flow growth in '16 compared to '15, despite the lower to longer commodity price backdrop that seems prevalent in the industry today. Just stepping back, the volume declines that we guided to back in March of this year have come to fruition as planned and in place steeper than expected mainly due to the late completions in two areas the Barnett and the Marcellus. We are cautiously optimistic this trend turns itself around over the next several quarters given the number of DUCs that are upstream of our various gathering systems. The level of ongoing drilling activity cross our systems and as existing projects under construction come online. Before turning it over to Marc, I'll end where I began. We believe our business model is well suited on a relative basis for a prolonged well commodity price environment, given our limited direct mining price exposure, diversified operations, high level of contractual MVCs and strong balance sheet. So with that I'll turn it over to Marc to review the quarterly financial results in more detail.

[Marc Stratton:]

Thanks Steve. Adjusted EBITDA for the third quarter of 2015 was $48.5 million compared to $53.2 million for the third quarter of 2014, a decrease of approximately 9%. The $4.7 million decrease in adjusted EBITDA was primarily due to the decrease in volume throughput on our Barnett Shale and Piceance Basin systems partially offset by increases on our Marcellus Shale and Williston Basin liquid systems. In addition, the reduction in commodity prices impacted our percent of proceeds agreement in the Williston and our condensate sales revenue in the Piceance. Adjusted EBITDA in the third quarter of 2015 include approximately $13.9 million related to MVC mechanisms from our gas gathering agreements. This amount included $35.2 million of minimum shortfall payments that were recognized as gathering revenue, 30.5 million associated with the net decrease in deferred revenue related to MVC shortfall payments. And 9.1 million associated with quarterly adjustments related to future projected annual MVC short fall payment. Additional tabular detail regarding our MVCs is included in the third quarter earnings release. SMLP reported net income of 23.6 million for the third quarter of 2015 compared to net income of 7.8 million in the third quarter of '14. Adjusted distributable cash flow totaled $34.7 million for the third quarter of 2015. This implies a distribution coverage ratio of 0.85 times relative to our third quarter distribution, a $0.575 per limited partner unit have to be paid on November 13, 2015. Capital expenditures for the third quarter of 2015 were approximately 29.1 million of which 2.1 million was classified as maintenance CapEx. As of September 30, 2015 we have $304 million of indebtedness outstanding under our revolving credit facility and $396 million of available borrowing capacity. Total leverage as of September 30, 2015 was 4.3 times. SMLP expects adjusted EBITDA for 2015 and distribution per unit to be at or slightly below the low end of previous guidance $210 million to 220 million for adjusted EBITDA and 4%-6% for distribution per unit. This guidance reflects a full year of Polar & Divide's results. And now I'll turn the call back over to Steve.

[Steve Newby:]

Thanks Marc. With respect to financial guidance we expect adjusted EBITDA for the full year of '15 and DPU growth for '15 to be at or slightly below the low-end of our previous guidance of $210 million to $220 million for adjusted EBITDA and 4%-6% for DPE growth. We expect that this level of adjusted EBITDA will generate full year distribution coverage of approximately 0.95 times. With respect to distribution growth guidance we have grown our distribution 2.7% year to date versus the 56 per unit distribution paid in the fourth quarter of '14. We intend to evaluate future quarterly distribution decisions in the context of balancing distribution growth versus distribution coverage while taking into account our prevailing distribution yield. Again this guidance assumes no additional dropdowns for the balance of 2015. Given that our customers continue to formulate their drilling budgets and production plans for 2016, we're not yet prepared to provide financial guidance for fiscal year '16. We plan to do so in early 2016 once we have better clarity on our customers' drilling and production plans. With respect to financial performance across the entire Summit family including Summit Investments, the third quarter of 2015 was the strongest quarter we've ever had primarily due to the significant ramping up of volumes across our Utica gathering assets. Drilling activity continues to be strong across our Utica service area particularly in the dry gas window. As a reminder, Summit Investments owns a 40% interest in Ohio gathering and Ohio condensate, two JVs with MarkWest Utica EMG in the southeastern core of the Utica Shale. Ohio gathering or OGC owns and operates a large scale natural gas gathering system in southeastern Ohio covering acres that span to condensate, rich gas and dry gas windows at the Utica Shale. The dry gas gathering system began service in late second quarter of this year which helped increase total gathered volumes by 31% from 582 million cubic feet a day in the second quarter and 762 million cubic feet a day in the third quarter. Year-to-date volumes across the OGC system averaged 615 million cubic feet a day. For those of you who follow MarkWest they indicated on their third quarter earnings call last week that they expect volumes on OGC to increase 100% in 2016 versus 2015 which is very encouraging for our financial outlook on that asset. Ohio condensate is a 23,000 barrel a day condensate stabilization complex which was operating at nearly full capacity in the third quarter. This facility is becoming a destination complex for large scale condensate production across the Utica and Marcellus Shale plays. Summit Midstream Utica is Summit's wholly owned and operated dry gas gathering system as being developed in Belmont County, Ohio for XTO Energy. During the third quarter two of Utica’s DI facilities were commissioned and are now in service with total throughput capacity of 300 million cubic feet a day. Currently we're gathering approximately 75 million cubic feet on this system which is up from an average of 42 million cubic feet a day in the third quarter. And we expect to see significant volume increases over the next several quarters. The Summit Utica system delivers an Energy Transfer’s recently commissioned 2.1 Bcf a day Ohio River pipeline hub. Our positive news wasn't isolated to the Utica, because in October we amended and expanded our gathering agreement with our anchor customer on a Niobrara associated gas gathering and processing system in Well County Colorado. We'll begin the upgrade and expansion of the plant at 20 million cubic feet a day of capacity in exchange for a first half dedication from acreage in Southern Wyoming which is current producing associated gas from the Codell formation. We're excited about this commercial development and the potential we have to execute additional system expansions in the future. We also announced today Energy Capital Partners, the private equity firm that controls Summit Investments is working with our team to explore and evaluate strategic options to enhance the value of this investment in Summit Investments and SMLP, including but not limited to pursuing a sale or other divestiture of its ownership interest in Summit Investments, which could result in a change of control of SMLP, pursuing an initial public offering of interest in the general partner of SMLP, augmenting Summit Investments' previously announced plan to execute 400 million to 800 million of dropdown transactions with SMLP each year through 2017, including, potentially accelerating the overall dropdown schedule or in light of the recent market conditions, adjusting the valuation metrics for financing plans to facilitate the dropdown plan, or finally, other forms of sponsor support for SMLP in light of recent market volatility, such as a unit repurchase program that could involve open market purchases of SMLP common units in transactions to be executed from time-to-time as market conditions permit. I can't comment much further than this, on their announcements but I will remind everyone that Summit Investments' owns the following assets. The GP of SMLP including the incentive distribution rights, operating assets in service and underdevelopment in Ohio, Colorado and North Dakota, annually 30 million common and subordinated units of SMLP. As ECP commented in our press release this morning, the evaluation criteria for moving forward with any alternative will take into account not only the significant operating and development asset base that we have at Summit Investments, but also the 30 million SMLP units that they own and the incentive distribution rights. ECP has also assured us that it is not currently evaluating alternatives that would decouple the dropdown inventory at Summit Investments from SMLP. Of course our lawyers do not let me mention any of this without also saying that there could be no assurances than any particular transaction or other course of action will be pursued or if any transaction is consummated what a future owner of Summit Investments will do. SMLP and Summit Investments do not currently intend to disclose further developments with respect to the process, except to the extent a specific transaction occurs, the review process is concluded or as it is required by law or otherwise deems appropriate. The review of strategic options is expected to be completed by the end of this year and we expect to provide more clarity around our dropdown guidance when we provide fiscal year '16 guidance in the first quarter of '16. Given the overall industry backdrop some people are trying to extrapolate from ECP’s strategic review, the idea that somehow something has changed with the long-term plans or performance of the Summit Enterprise. This is the classic they must know something we don’t augment given the overall backdrop of the industry. I would caution against that line of thinking because the motivations of financial investors often include factors other than the long-term outlook to the underlying business. This is especially true with an investor that was part of the formation of Summit more than six years ago and provided substantial and patient equity capital along the way. In light of this, I'd ask our investors to take a step back and view the situation with these facts in mind. The Summit Enterprise overall had a record third quarter financial, our best quarter ever. We are predominantly in the core area of most of our operating areas including a very large position in the core area of the most economical basin in the country, the Utica. Finally, the Summit Enterprise both our MLP and GP combined will grow well into the double-digits on an EBITDA basis when comparing 2015 to 2016. Our challenge is not overall growth but how to efficiently and effectively move our development assets from our GP to our MLP in an accretive manner in what is a challenging overall capital markets backdrop for almost all MLPs. So with that I'll open it up for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question is from Helen Ryoo of Barclays. Please go ahead.

[Helen Ryoo:]

So, just a couple of follow-ups on the strategic options you mentioned. When you talk about potentially accelerating the dropdown schedule in light of the current market condition, do you need to wait till the capital market opens up or how do you -- in this if you were to pursue this scenario I mean how are you thinking about funding?

[Steve Newby:]

Helen it is Steve, I think in light of that option I would say an acceleration or any dropdown at this stage is going to need substantial GP support, so that's how we're thinking of it.

[Helen Ryoo:]

So, potentially just GP taking units as the pricing to be young possibility of sponsor units repurchase program, and I think is one sort of linked to the other?

[Steve Newby:]

I think GP taking units is just one option that we have, there's multiple things the GP could do to help facilitate the dropdowns. And in this environment we'd do, or need to do.

[Helen Ryoo:]

Okay. And if you decide to do this, I mean we'll hear about it in the next six weeks or so, since you're going to conclude this…

[Steve Newby:]

That's right the acceleration of the dropdowns is of the options we're evaluating.

[Helen Ryoo:]

And then just the structure of the Summit Midstream Partners LLC, is that set up as a partnership or C Corp.?

[Steve Newby:]

It's an LLC, so it's a partnership.

[Helen Ryoo:]

It's a partnership, got it. [Multiple Speakers] And then just I guess going to some clarifications on your reportable statement EBITDA, so that number the five segments EBITDA number that includes MVC payments?

[Matt Harrison:]

Helen it is Matt here, it does, yes.

[Helen Ryoo:]

Okay. So, essentially Piceance and Barnett inclusive of the MVC payment has looked like there was on the -- 2 million to 4 million year over EBITDA decline there, is that correct?

[Matt Harrison:]

That's right.

[Helen Ryoo:]

And then the other question was CapEx, could you just give us an update on what -- how much CapEx you have remaining to spend given the project you've announced and you're executing right now? Yes Helen it is Steve, so we're about some 90 million approximately through the third quarter, on total CapEx, that is growth of about 83 million and we expect to be right in the middle, our guidance was 116 to 136, we expect it to be right in the middle of that for the year around 120, let’s call it 120 million to 125 million of total CapEx.

[Helen Ryoo:]

Okay. So you seem to you have maybe another 30 or so remaining?

[Steve Newby:]

That's a good estimate, yes. 38.

[Helen Ryoo:]

Okay. And then do you have anything for 2016, that's committed to be spent?

[Steve Newby:]

We do yes, particularly in the Bakken for expansion projects there and we'll be coming out with '16 guidance as we mentioned in early first quarter of next year, so including CapEx guidance.

[Helen Ryoo:]

Okay, got it.

[Steve Newby:]

But we are still executing on expansion projects in the Bakken for Whiting and Savannah.

[Operator:]

Thank you. Our next question is from Praneeth Satish of Wells Fargo. Please go ahead.

[Praneeth Satish:]

Just a couple of quick questions, I guess you kind of touched on it but I was hoping you could maybe elaborate on just any insight as to why Energy Capital Partners is electing to potentially monetize their interest right now, I guess in this kind of commodity environment?

[Steve Newby:]

I would point you to their piece of our press release, I don't want to speak for them because we're not them, but they've been part of us since formation, they're six years in we are in their second fund, they obviously have raised their third fund earlier this year, so outside of that I don't think I'm probably the right person to comment on exactly what they're thinking as it relates to this commodity price environment.

[Praneeth Satish:]

And then just in terms of spending, CapEx spending at Summit Investments, has that slowed at all I think in the last presentation, there is a slide there that says that the target is 665 million of investment target for 2016 to '19, is that still the expectation or is that changed at all?

[Steve Newby:]

I’ll let Matt handle that one.

[Matt Harrison:]

Yes this is Matt. That expectation has a relatively consistent. I would say that timing is movement around maybe between years little bit as we give it a bit little more execution in the dry gas window, but the total CapEx dollars from our last presentation have remained relatively consistent.

[Praneeth Satish:]

And then just last question for me, I guess relative to some peers there is a lot of OpEx savings that's going on in this type of environment, I was just wondering if you could give us an update in terms of where -- how much OpEx savings Summit’s realized to-date and whether there is the ability there to clamp down on that a little bit more in the coming quarters?

[Steve Newby:]

Yes, good question. So, if you look at our -- I'll give you OpEx and G&A actually so if you look at our what we called direct OpEx, so this is our controllable OpEx we obviously have some pass throughs like power and things like that in our OpEx line, but our controllable OpEx from third quarter of last year to third quarter of this year is down about 11% and our G&A is down by about 14% year-over-year. So, I think like others everyone is sort of focused on what they can control in this environment and we no different there and think we're doing a pretty good job there as well so.

[Praneeth Satish:]

Okay. And then just going forward is there the ability to have to drive that down any further or is this kind of the most severe to mean on bonus has been taken off at this point?

[Steve Newby:]

Yes I mean I think it will be around the edges going forward more so, I mean we're like others more of a fixed cost business. So, I wouldn't say that there is not incremental savings I would say that we have driven a lot out of it already so.

[Operator:]

Thank you. Our next question is from Tristan Richardson of SunTrust. Please go ahead.

[Tristan Richardson:]

Just wanted to say thank you for providing the commentary on ECP and the additional clarity is really helpful. And then I guess just towards your optimism for the first half of next year, maybe a silver lining of deferrals as it gives you a little bit of added visibility, but I guess just directionally for us when you talk about 18 DUCs in the Barnett in the first half of '16. I guess just year-over-year how should we think about new wells brought to production in the first half of '15?

[Steve Newby:]

Yes, so let's clarify maybe in the Barnett, we have 28 DUCs in the Barnett overall, 11 of which were recently drilled so -- and we have very good clarity -- part of our optimism, a large part of our optimism is on the clarity around our DUCs across the operating platform, the Barnett in particular and plans and communications we have with our customers there to bring those DUCs online. The Barnett in particular is a little bit different scenario because the delay in completions there from one of our large customers was not really price related, it was more operationally related on their end and so we have fairly good clarity we believe in those wells coming online at the end of this year and this quarter, fourth quarter and then in early '16 as well too. So that's what gives us a little bit of optimism particularly round our Barnett system. In the Marcellus, different situation, still large amount of DUCs there, 30 or so, 32, I think upstream of our system. That one was price related I think Antero has been clear on that. And there's a interstate takeaway option being completed here in the fourth quarter so it'd be complete in the fourth quarter that they relate to us and a lot of other folks. That's when they plan on resuming completion activities once that is up and going. So a large portion of our optimism really across the platform over the next two or three quarters is simply related to what has already been drilled on our system. It's not necessarily related to a bullish, extremely bullish drilling profile here in the fourth quarter and first quarter. It's really what's already been drilled and expected to come on line.

[Tristan Richardson:]

And then I guess just in terms of the 50 new wells from Ursa in '16, could you compare that to sort of what their activity has been this year? If you can.

[Steve Newby:]

Yes, give us a second we'll tell you what we did, so we did an expansion, an incremental expansion project for them executed in the third quarter where we're putting some CapEx in the ground to expand our systems for those that know our assets well, this is what we call our rifle area, which is actually at capacity. And so we're expanding that area, they're going to have a drilling rig move back in there I think this quarter and then they've committed a certain amount of volumes, we got a pretty significant step up in our minimum volume commitments from them. So in '15 they ran, basically ran a rig the balance of, for most of '15 or have run a rig for most of '15. And they'll complete I don't know roughly what 25 or so wells this year. And so that activity is going to ramp-up here end of this year and in the first to next, under the new deal we did with them.

[Tristan Richardson:]

And then just last one from me, in terms of Summit Utica, the dry gas serving XTO. The volume increase you noted there in the third quarter. Was that mainly driven by their activity or -- but I know you also commissioned some new infrastructure during the quarter. Just talk about maybe what drove the volume improvement there?

[Steve Newby:]

Yes, it's mainly their activity, so we were somewhat limited during the third quarter to downstream capacity coming on line, quite frankly and they were limited by that downstream coming online too. So that line came online late third quarter and so we brought two big DI facilities online during the quarter, 300 million of capacity and we are expecting a pretty significant ramp-up over the next 12 months on that system so.

[Tristan Richardson:]

That's great.

[Steve Newby:]

So what you're seeing in the third, yes sorry, what you're seeing in the third quarter numbers is really a back half of the quarter volume impact not much of third quarter at all really last month or so.

[Operator:]

Thank you. Our next question is from Jerren Holder of Goldman Sachs. Please go ahead.

[Jerren Holder:]

Just wanted to get a, I guess a better understanding of the minimum volume commitments I guess heading into 2016. So I guess in a hypothetical situation if volumes were flat across your entire system should we expect EBITDA to be flat, down, or up just given that certain systems maybe stepping up their MVCs or stepping down, how should we think about that?

[Matt Harrison:]

Yes this is Matt, Jerren. So, as you think about the Piceance and you think about Mountaineer and others MVCs are relatively flat. Where the MVCs will step down actually will be on our Bison system. So the Bison system and in a flat volume scenario would be impacted to the downside from an EBITDA standpoint.

[Operator:]

Thank you. Our next question is from Jeff Birnbaum of Wunderlich. Please go ahead.

[Jeff Birnbaum:]

So, you mentioned or ECP mentioned in their release that -- I guess they have assured you that they are not considering a transaction that would separate SMLP from the development assets of the GP. Is there any color you can give just on whether or not it's on the table that they could sell to a strategic buyer that has its own MLP?

[Steve Newby:]

Yes, I would -- we're not going to comment too much further on it, I would say there quote and their comments on not decoupling the assets of the GP from the MLP, took into account I believe their views on strategic buyers as well.

[Jeff Birnbaum:]

And just given some of your -- assuming there is no sale, given some of your prior comments about pacing of 2016 drops on your last conference quarterly call, do you expect drops would probably start closer to the beginning of next year, just given some of the progress as well on the dry Utica assets?

[Steve Newby:]

Yes, I think I would just caution that we're going to come out in early '16 with guidance including dropdown guidance and our financial guidance for '16. I'd rather wait till then, until we get through this strategic review as well. Obviously, that's impactful and so anything I give you now is just not, it's not worth -- we got to wait and see -- get through these things, we'll be out in early '16.

[Jeff Birnbaum:]

And then just in the Williston, how much do you know, at least on an EBITDA basis, if the work on the Thomas Lateral impacted results there? And do you know what volumes have been since that pipeline was re-commissioned?

[Steve Newby:]

Yes, so it was -- I would say that the financial impact is a few hundred thousand dollars worth of EBITDA, the line has been placed back into service, it was produced in 2,000 to 3,000 barrels a day and are moving 2,000 to 3,000 barrels a day for second line of service and it's back to those levels currently.

[Operator:]

Thank you. Our next question is from Charles Marshall of Capital One Securities. Please go ahead.

[Charles Marshall:]

I just had one quick question here. Just in terms of -- you said earlier on the call that you don't have any plans to issue equity next year. Given where your net debt to EBITDA leverage ratio was a bit north of your target, how do you see that evolving over the next six to 12 months, understanding that there's some noise around potential drop-downs? But I guess with your current asset base, can you guide us in terms of how you think that will trend over the next six to 12 months?

[Matt Harrison:]

Yes sure Chuck this is Matt Harrison. So, we would expect that number to trend up a little bit in the fourth quarter and this is a result of completing the Stampede Lateral, as well as we're continuing to kind of project for minimum volume commitment payments the largest from Encana and EOG which then would -- you will receive in the first quarter of '16. But barring any dropdown activity or anything like that we would expect that that leverage would kind of stay consistent in the 4.5 to maybe a little bit higher in '16.

[Charles Marshall:]

And one last one for me in terms of your CapEx guidance has there been any shift relative to growth and maintenance or I think you said total CapEx had basically stayed the same. But has there been any shift between the buckets?

[Steve Newby:]

Yes I mean I think it's all within our range, but maintenance is probably on the low-end of our range and that' really just us being more efficient in this kind of environment on what we spend, so it's a review of all CapEx, so maintenance is on the low-end, I’d say growth is probably right smacked out in the middle.

[Operator:]

Thank you. Our next question is from Nathan Judge of Janney Montgomery. Please go ahead.

[Nathan Judge:]

I just wanted to ask if there were any limitations from ECP as far as how much you could take in shares and/or any exposure, I guess, to SMLP?

[Steve Newby:]

Yes, and first I'd tell you it's really Summit Investments not all the way up to ECP, and Summit Investments is fairly low levered, pretty significant financial flexibility as well it obviously owns 30 million units already of the MLP and so there's a lot of things it could do once you have got the ROFO as well too, so there's a lot of levers to pull on Summit Investment assisting SMLP and executing the dropdown plan. So, that's I don't -- there's a lot of flexibility at Summit Investments right now.

[Nathan Judge:]

And just as it relates to the strategic decisions and the alternatives, have you had discussions with ECP regarding a ROFO or anything of that nature?

[Steve Newby:]

I would say in this process, we have had discussions on a lot of different things, with them, so I think, I'll leave it at that, yes, there has been a lot of discussions around a lot of different factors of and things of support that they look at doing so.

[Operator:]

Thank you. Our next question is from Andy Gupta of HITE Hedge Asset. Please go ahead.

[Matt Niblack:]

Hi. This is Matt Niblack. So thanks a bunch for all the clarity that you are able to provide on the process upstairs. I know it's not everything everyone is looking for, but a statement of any kind is certainly appreciated. The first question is around the Piceance Basin. Are you having any rumblings from your producer customers about wanting to renegotiate, given how far you are below your MVC for that basin as a whole?

[Steve Newby:]

Yes I would say, no, not really. With what we've had conversations with some customers on is looking at expansions in other areas of the country for them, trying to use those MVCs for both them and us as a positive factor and looking at other areas, quid pro quo so to speak, but nothing on just straight reductions, I don't think that doesn't make a lot of sense for us either, so something like that has to make sense for us, where we're garnering other business as well too so, and in fact I would tell you the deal which appeared in the Piceance significantly increased our MVCs with Ursa.

[Matt Niblack:]

Right, right and certainly a good sign, and then in looking forward to the result of the strategic review, you said at the beginning of the call that equity wouldn't be required in 2016. But I think I was -- to clarify, that was for your base business. And then related to that, if you do pursue particularly an accelerated drop-down schedule or even a drop-down schedule in line with your original guidance, would you issue public equity at the current price, or would that inherently involve some form of a private equity with either the sponsor or another party?

[Steve Newby:]

Yes, I would say, what I answered it a couple of questions ago, I would -- we're going to give detailed guidance around our dropdown plans in early '16 in our financial guidance for '16 and I think, when we give detailed dropdown plans, I think we'll be able to comment further on how we plan to finance that strategy as well too so -- and on your first question, yes it’s related to the base business.

[Matt Niblack:]

And then lastly, just looking at the tremendous value of that Utica asset, is it likely as you've at least hinted to in the past that some slice of that would be the first drop-down in any likely strategy into 2016?

[Steve Newby:]

Well I think, yes I think look 85 plus percent of the asset base we have at Summit Investments is the Utica. So on a just what is up there in the scale of what is out there I think it make sense that some of that is going to make its way down to the MLP in the near-term. So, that's just number one, number two I think we've been pretty clear part of the strategic review process, that the Utica assets were setting up very nicely for '16 just given their development profile and I think given some of our commentary today around where those assets are from a volume standpoint, and where they are expected to be, I don't think any -- nothing has changed on that, in fact we’d argue it has probably accelerated the development of the assets so.

[Matt Niblack:]

Well, certainly we would look forward to part of that being in the MLP. I think that would go a long way toward soothing some of the investor concern that has been reflected in the shares recently. But thank you for taking the questions.

[Operator:]

Thank you. And our next question is from Jeff Birnbaum of Wunderlich. Please go ahead.

[Jeff Birnbaum:]

I just wanted to circle back to one other comment from earlier. Just broadly speaking, I think you mentioned that the way we should think about forward growth in this environment certainly is balancing distribution growth relative to coverage. So I was wondering whether there are any changes to how you have been thinking about distribution coverage on an organic basis or whether you think that would change if some of the drop-downs are executed next year and going forward. Just any color there would be helpful.

[Steve Newby:]

I'll take it first then Matt can jump in. I think first, we had guided I think pretty clearly that coverage was going to dip down in the back half for this year we gave that guidance pretty early in the year. And so isn’t a surprise to us and expected and I think what goes into our thought process and the Board thought process around growth is also our view on the forward outlook on the business and I think our cautionary comments are related to around are we going to -- will we see the completions like we believe we will see the completions in our DUC inventories today which will drive cash flow and then the final factor obviously, is our dropdown strategy because that impacts our financial profile and our growth overall and it have to be considered when we think about distribution growth, so getting more clarity around that and how we are going to do that, also will give us more clarity around this fourth quarter distribution and the balance of '16 distribution. Do you have anything Matt?

[Matt Harrison:]

That's fine.

[Steve Newby:]

For the first time ever Matt had nothing to add to actually my comments.

[Jeff Birnbaum:]

So, the target coverage for going forward would still be something, I assume, along the 1-1 times?

[Steve Newby:]

Yes, I think 1.05 to 1.1 is sort of where we'd like this dependent in this environment it's going to bounce around a little bit, given the environment we're cognizant of that and I think -- but long-term yes absolutely, that's we – long-term we're not going to borrow to grow our distribution.

[Operator:]

Thank you. And I'm showing no further questions, at this time.

[Steve Newby:]

Okay, thanks everyone, and obviously please follow-up as usual with our team if you have additional questions.

[Operator:]

Thank you, and thank you ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.