Summit Midstream Partners, LP (NYSE:SMLP) Q4 2023 Earnings Call Transcript

Summit Midstream Partners, LP (NYSE:SMLP) Q4 2023 Earnings Call Transcript March 15, 2024

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Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2023 Summit Midstream Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. Please note that today’s conference is being recorded. I would now like to pass the call over to the Director of Finance, Treasurer and Investor Relations, Randall Burton.

Randall Burton: Thanks, operator, and good morning, everyone. If you don’t already have a copy of our earnings release, please visit our website at www.summitmidstream.com, where you’ll find it on the homepage, Events and Presentations section or Quarterly Results section. With me today to discuss our fourth quarter of 2023 financial and operating results is Heath Deneke, our President, Chief Executive Officer and Chairman; Bill Mault, 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 2022 Annual Report on Form 10-K, which was filed with the SEC on March 1st, 2023, our 2023 Annual Report on Form 10-K, which will be filed soon, 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, distributable cash flow and free 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: Thanks Randall, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2023 results. We will also discuss our current 2024 outlook, which is looking to be another solid year despite the low gas price environment that we are in. But first, I would like to provide a brief update on our strategic alternatives review. The process which we launched in October of 2023 remains very active. We are continuing to evaluate multiple opportunities ranging from asset sales to partnership level transactions, all with a goal of maximizing value for our unitholders. While we have not set a definitive timeline to complete our strategic alternatives review, we have made substantial progress over the past several months and now believe we are entering into late stages of the review.

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Q&A Session

We remain very excited about the opportunity set to further maximize value for our unitholders and we look forward to providing more fulsome update in the near future. Now, onto our fourth and 2023 results, Summit delivered fourth quarter adjusted of $75 million and full year 2023 adjusted EBITDA of $257 million, which represents about 25% EBITDA growth from the prior year. During the year, we generated over $125 million of distributable cash flow and just shy of $60 million of free cash flow. Aside from our solid financial results, we have multiple operational and commercial successes that we expect will drive earnings growth in 2024 and beyond. In the Northeast, behind our wholly-owned Utica system will commission as previously announced compression project resulting in an incremental compression fee and that’s beginning in the first quarter of 2024.

Also in the Northeast, behind our Ohio Gathering joint venture, we executed a new 15 year gathering agreement which dedicated over 25,000 acres to this system with a producer located in the condensate window of the basin. That producer is currently running a one rig program and we expect to turn eight [Ph] wells in line in 2024 and they have indicated another 12 wells to be drilled and completed in 2025. We also executed a new 10 year take-or-pay contract with a large independent producer behind a Double E Pipeline. As the new contract will connect Double E to a $300 million a day processing complex that is currently under construction and will position us to capture incremental volumes as that plant is expanding in the coming years. We are making progress with our shippers to secure additional take-or-pay contracts among who is at the fundamentals in the Delaware Basin are really setting the stage of what we expect to be a very productive year in commercializing Double E.

Also in the DJ, we’ve been very focused as you know on integrating and optimizing the DJ Basin acquisitions. We completed a number of debottlenecking projects that will allow us more efficiently utilize the systems, which we believe will drive between $5 million and $10 million in optimization value starting in 2024 and beyond. 2023 was certainly a very busy and very productive year for Summit and our employees and we expect that those activities we executed in 2023 to continue to drive growth into 2024. Earlier this morning, we had announced full year 2024 adjusted EBITDA guidance of $260 million to $300 million, which at the midpoint represents approximately 5% year-over-year growth. This growth is driven by 170 to 230 well connects and we expect to connect to the systems in 2024.

Of the expected well connects in ’24, approximately 15% are dry gas oriented wells, approximately 35% are liquids rich gas oriented wells and approximately 50% are crude oil oriented wells, which we feel is a good mix of commodity exposure, especially given the softness we are currently seeing in natural gas strip pricing. Similar to previous years, our guidance range incorporates real-time feedback we are receiving from our customers regarding their development plans and we are tracking rigs and completion crews to ensure well connects remain on track in 2024. Just as a refresher to our risking and guidance methodology, if our producers hit their turn-in-line dates and production targets we would expect to be at the high end of our adjusted EBITDA guidance range of ‘24.

The low end of our range reflects approximately 15% reduction in planned well connects, and we have further risked the timing of wells that are slated to come online in the second quarter and beyond. We’ll continue to keep an eye on activity levels in and around that system and we’ll provide updates throughout the year. Our 2024 capital guidance ranges from $30 million to $40 million this year, which includes maintenance capital which is primarily related to well connects in the Rockies and the Northeast segment. This level of capital and resulting adjusted EBITDA expected in 2024 goes to show the amount of operating leverage, free cash flow generations these assets are capable of producing. And with that, I’ll hand the call over to Bill to provide some additional details on our financial results and 2024 guidance.

Bill Mault: Thanks, Heath, and good morning, everyone. As Heath mentioned, we had a great year and with the business trending as we expected, and are excited about how 2024 is shaping up. I’ll start by discussing our financial performance, followed by providing a bit more color on our 2024 guidance. Summit reported fourth quarter net loss of $15.1 million, adjusted EBITDA of $75 million, resulting in full year 2023 adjusted EBITDA of $267 million. Capital expenditures totaled $19.2 million for the quarter and $69 million for the full year 2023which as a reminder included approximately $15 million of one-time integration, capital-related to our DJ Basin acquisitions and recently commissioned compression station expansion at SMU.

With respect to SMLP’s balance sheet, we had $313 million outstanding under our $400 million ABL facility and our available borrowing capacity at the end of the fourth quarter totaled approximately $83 million, which included $4.3 million of LCs. Now turning to the segments. In the Northeast, which is inclusive of our SMU system, proportionate share of Ohio Gathering joint venture and our Marcellus system, the segment averaged 1.62 Bcf per day during the quarter, inclusive of 826 million cubic feet a day of 8/8ths OGC volumes, and segment adjusted EBITDA totaled $28.4 million, an increase of $0.7 million from the third quarter of ‘23. The variance was largely due to higher volume throughput on our wholly-owned SMU system from three new wells turn-in-line during the quarter and a full quarter contribution of the 14 wells turn-in-line in the third quarter.

This was partially offset by natural production declines behind our OGC joint venture. There are currently three rigs running behind our systems, one behind our wholly-owned SMU system and more than 35 DUCs behind the OGC, SMU and Mountaineer systems. The Rockies segment, which is inclusive of our DJ and Williston Basin systems generated adjusted EBITDA of $22.4 million, which was down by $1.1 million from the third quarter largely due to a 4.7% decline in liquids volume from natural production declines and lower commodity prices impacting our POP contracts in the DJ Basin. This was partially offset by a 7.7% increase in natural gas volumes and approximately $1 million of lower operating expenses. We estimate lower realized commodity prices negatively impacted gross margin by approximately $2 million during the quarter.