Summit Midstream Q2 2024 Earnings Report

Summit Midstream EPS Results

• Actual EPS: -$1.86
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Summit Midstream Revenue Results

• Actual Revenue: $101.32 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Summit Midstream Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Friday, August 9, 2024
• Conference Call Time: 10:00AM ET

Summit Midstream (NYSE:SMC) focuses on owning, developing, and operating midstream energy infrastructure assets primarily shale formations in the continental United States. It operates natural gas, crude oil, and produced water gathering systems in four unconventional resource basins, including the Williston Basin in North Dakota, which includes the Bakken and Three Forks shale formations; the Denver-Julesburg Basin that consists of the Niobrara and Codell shale formations in Colorado and Wyoming; the Fort Worth Basin in Texas, which comprises the Barnett Shale formation; and the Piceance Basin in Colorado, which includes the Mesaverde formation, as well as the emerging Mancos and Niobrara Shale formations. It serves natural gas and crude oil producers. Summit Midstream Corporation was founded in 2012 and is based in Houston, Texas.

Summit Midstream Q2 2024 Earnings Call Transcript

[Operator]

and thank you for standing by. Welcome to the 2024 Second Summit Midstream Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

[Operator]

I would now like to hand the conference over to your first speaker today, Randall Burton, Director of Finance and Investor Relations. Please go ahead.

[Speaker 1]

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 Q2 of 2024 financial and operating results is Heath Denneke, our President, Chief Executive Officer and Chairman Bill Mould, 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.

[Speaker 1]

They may also include statements concerning anticipated cash flow, liquidity, business strategy and other plans and objectives for future operations. Although we believe that these expectations reflected in such forward looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see SMLP's 2023 Annual Report on Form 10 ks and Exhibit 99.1 to the partnership's current report on Form 8 ks filed with the SEC on June 3, 2024, as well as SMC's registration statement on Form S-four as declared effective on June 14, 2024 for a listing of factors that 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.

[Speaker 1]

And with that, I'll turn the call over to Heath.

[Speaker 2]

Great. Hey, thanks. Thanks, Randall, and good morning, everyone. Thanks for joining the call today to discuss our Q2 2024 results. And our first call is Summit Midstream Corporation or SMC.

[Speaker 2]

Wanted to start today by thanking all of our unitholders, now shareholders, for your support and participation in our special meeting where our unitholders voted to approve the conversion from an MLP to a C Corp. We believe this transaction will deliver significant benefits by reducing unitholders' tax burden, simplifying Summit structure to make the equity much easier to own, it will enhance our trading liquidity and greatly expand the universe of potential investors as we continue to execute on our plans. As of August 1, 2024, we have officially converted to a C Corp and the common stock has commenced trading on the New York Stock Exchange under the ticker symbol SMC. Additionally, on July 6, 2024, we closed on the refinancing of $575,000,000 of new senior secured second lien notes due in 2029 as well as an upsized $500,000,000 ABL facility also due in 2029. Through this refinancing, we have significantly improved Summit's financial flexibility.

[Speaker 2]

We've extended our maturities out to 2029 and created a solid runway to continue to execute on the base business to further commercialize the Double E pipeline and to continue to delever the balance sheet to achieve our long term leverage target of 3.5 times. And as we accomplish this, then we'll potentially look at reinstating a sustainable distribution policy for our preferred and common equity shareholders. In addition to our focus on Double E and executing on the base business, we continue to evaluate several value and credit accretive M and A opportunities to kind of further rebuild our scale and position the platform for continued growth well into the future. We're extremely pleased with the progress we've made towards executing our long term strategy and believe all of the actions taken this year further positions the company to continue to drive outstanding returns for our shareholders in the coming years. Now turning to operations.

[Speaker 2]

We continue to see encouraging operating and financial results across all of our systems. Our second quarter results were solid despite some operational downtime and curtailments that Bill will get into more during his section. We connected 34 wells to the system during the quarter and currently have 3 rigs running behind our systems including 1 in the Barnett from our anchor customer. I highlight the Barnett because we continue to see our anchor customer connect highly productive wells to the system with 14 wells connected in the Q2 throughout the challenged natural gas price cycle, which is leading to both volume and EBITDA growth in that segment. We're extremely excited about this level of activity behind the system.

[Speaker 2]

And as we enter a more supportive natural gas price environment forecast in late 2024 and 2025, we believe there will likely be even more activity and volume behind the system than what we're seeing today. As natural gas demand starts to increase with incremental LNG and power demand, we think that Barnett is in a great position to help fill that demand with low cost close to the Gulf supply. We're also seeing robust activity levels continue in the second half of the year in the Rockies segment as well, which is also positioning Summit to have a very strong second half of the year. Lastly, in the Permian, we continue to advance discussions with multiple shippers to subscribe the remaining firm capacity on the Double E pipeline under long term contracts. We're very excited about the prospect of filling up Double E in the near term and potentially expanding the pipeline via midpoint compression project, which in the aggregate could more than double the current level of EBITDA Summit generates from the business.

[Speaker 2]

We look forward to providing more updates throughout the year as we make further progress on our commercialization efforts. So just to recap, we've had a very productive year executing on the broader corporate strategy and with the business continuing to perform well, we continue to expect to achieve our previously stated pro form a adjusted EBITDA guidance range of $170,000,000 to $200,000,000 for the year. And we remain super excited about our ability to grow the business and shareholder returns from where we stand today. So with that, I'd like to hand the call over to Bill to provide additional detail on our financial segment results.

[Speaker 3]

Thanks, Heath, and good morning, everyone. Summit reported 2nd quarter net loss of $23,900,000 adjusted EBITDA of 43,100,000 dollars and capital expenditures of $10,500,000 with the majority of the CapEx spend in the Rockies associated with pad connections. With respect to SMLP's balance sheet, we had net debt of approximately $660,000,000 with an undrawn $400,000,000 ABL credit facility at quarter end and our available borrowing capacity at the end of the 2nd quarter totaled approximately $372,000,000 which includes approximately $4,000,000 of LCs and $24,000,000 of commitment reserve for the 2025 unsecured notes. As Seif mentioned, in July, subsequent to quarter end, we executed a refinancing of our capital structure, which included and upsized the $500,000,000 ABL credit facility and a new $575,000,000 second lien note, both of which mature in 2029. Net proceeds from the new note issue and ABL facility along with cash on hand were used to tender for all the outstanding 2026 senior secured second lien notes and the remaining 2025 unsecured notes.

[Speaker 3]

Now turning to the segments. In the Rockies, which is inclusive of our DJ and Williston Basin systems, we generated adjusted EBITDA of $22,900,000 which is relatively flat from the Q1. We experienced a 1.4% increase in liquids volume throughput and a 4.8% increase in natural gas volume throughput, which was offset by lower product margin. We continue to experience some operational downtime at a compressor station on our system. This downtime resulted in an increase in the amount of volume Summit had to offload to a neighboring processing plant and impacted our product margin during the quarter by approximately $1,500,000 We expect this downtime to be partially resolved in the Q3 and fully resolved by the Q4.

[Speaker 3]

On the crude side, liquids volumes averaged 75,000 barrels a day, a slight increase relative to the 1st quarter due primarily to new wells connected to the system in the first half of the year, partially offset by natural production declines. Natural gas volumes averaged 130,000,000 cubic feet a day, an increase of 6,000,000 cubic feet a day relative to the Q1, primarily due to the weather impacts we experienced in the Q1. We connected 18 wells in the DJ and 2 wells in the Williston during the quarter and the Rockies segment currently has 2 rigs running behind the systems and approximately 90 docks. The Permian Basin segment, which includes our 70% interest in the Double E pipeline reported adjusted EBITDA of $7,700,000 an increase of $400,000 relative to the Q1, due primarily to higher volume throughput on the pipe. Volume throughput on Double E averaged 549,000,000 cubic feet per day, representing a 17.5% increase relative to the 1st quarter.

[Speaker 3]

The PION segment reported adjusted EBITDA of $12,800,000 a decrease of $2,400,000 relative to the 1st quarter, primarily due to production declines, approximately $1,000,000 of known contractual step downs and approximately $200,000 of lower condensate sales during the summer months. We suspect that the extremely low Rockies natural gas prices realized during the quarter impacted customer production with several of the new pads brought online in 2023 being choked back during the quarter. Volume throughput averaged 289,000,000 cubic feet per day during the quarter. The Barnett segment reported adjusted EBITDA of $5,400,000 an increase of $300,000 relative to 1st quarter, primarily due to a 12.8% increase in volume throughput, partially offset by $700,000 increase in operating expenses associated with the timing of certain planned maintenance related costs. The volume throughput increase is primarily due to our anchor customer completing and connecting 14 new wells during the quarter.

[Speaker 3]

And after quarter end, that customer turned in line a 5 well pad with initial production of approximately 30,000,000 cubic feet a day. Additionally, another customer on the system who has had production shut in partially resumed flowing approximately $10,000,000 to $15,000,000 a day of shutting gas in June. While there's certainly a positive event, we still believe there's approximately $25,000,000 to $30,000,000 of shutting production behind that system currently. There's currently 1 rig running and 13 DUCs down the system. And to give you an idea of how impactful some of these events have been, average volume on the system over the last 5 days has been averaging over 260,000,000 cubic feet today or over 25% higher than the Q2 average throughput report that we're reporting today.

[Speaker 3]

And with that, I'll turn the call back over to Heath for closing remarks.

[Speaker 2]

All right. Yes, thanks, Bill. So as I said earlier, we're very pleased with the 2nd quarter performance and the progress that we made on executing the corporate strategy. We look forward to continuing to build on that momentum throughout the year and certainly look forward to providing further updates on our progress throughout the year. With that, I'd like to thank you for your time and continued support.

[Speaker 2]

Operator, please open the call for questions.

[Operator]

Thank you. At this time, we will conduct a question and answer session. I'm showing no questions at this time. Thank you for your participation in today's