Summit Midstream Partners, LP Reports Fourth Quarter and Full Year 2014 Financial Results & Revises 2015 Financial Guidance

THE WOODLANDS, Texas, Feb. 26, 2015 /PRNewswire/ -- Summit Midstream Partners, LP (NYSE: SMLP) announced today its financial and operating results for the three months and year ended December 31, 2014.  SMLP reported adjusted EBITDA of $48.9 million and adjusted distributable cash flow of $35.1 million for the fourth quarter of 2014 compared to $46.9 million and $35.2 million, respectively, for the fourth quarter of 2013.  SMLP reported a net loss of $37.7 million for the fourth quarter of 2014 compared to net income of $21.0 million in the fourth quarter of 2013. Volume throughput averaged 1,491 MMcf/d in the fourth quarter of 2014 compared to 1,223 MMcf/d in the fourth quarter of 2013, an increase of 21.9%, primarily due to increased throughput on the Mountaineer Midstream, Bison Midstream and DFW Midstream systems.

For the year ended December 31, 2014, SMLP reported adjusted EBITDA of $193.8 million and adjusted distributable cash flow of $140.7 million compared to $164.8 million and $131.0 million, respectively, for the year ended December 31, 2013.  SMLP reported a net loss of $21.2 million for the year ended December 31, 2014 compared to net income of $53.3 million for the year ended December 31, 2013.  Volume throughput averaged 1,418 MMcf/d for the year ended December 31, 2014, an increase of 24.6% over 2013.

Steve Newby, President and Chief Executive Officer of SMLP commented, "SMLP reported strong fourth quarter operating performance reflecting higher year-over-year and sequential quarterly volume throughput across our Marcellus Shale, Williston Basin, and Barnett Shale segments.  Our fourth quarter 2014 adjusted distributable cash flow was impacted by the sharp deterioration of commodity prices late in the quarter.  Despite these challenges, SMLP delivered its ninth consecutive quarterly distribution increase to unitholders, growing the 2014 fourth quarter distribution per limited partner unit by 16.7% over the fourth quarter of 2013."

"As we look forward, we continue to monitor the impact of lower crude oil, NGL and natural gas prices on our customers' capital expenditure budgets and ultimately, on our volumes and cash flows.  SMLP's primarily fee-based contract portfolio includes a high level of contracted and growing MVCs that limit our direct commodity price exposure.  Based upon 2015 pricing of $55.00 per barrel crude oil and $2.75 per MMBtu natural gas, coupled with an expected decrease in our customers' 2015 capital expenditure budgets, we are lowering the midpoint of our previously announced 2015 adjusted EBITDA guidance by 9.0%. This revision is driven by the approximately 30% to 50% decrease in commodity prices since announcing our 2015 financial guidance in early November 2014."

"Our strong balance sheet and large inventory of potential drop down assets at Summit Investments provides us with visible and attractive distribution growth in 2015 and over the long term.  We remain committed to our strategy to acquire assets from Summit Investments, at a rate of $400 million to $800 million annually through 2017, which will drive our long-term distribution growth."

SMLP's financial results for the fourth quarter and full year of 2014 were impacted by several charges in the fourth quarter of 2014 including:

• a $54.2 million noncash goodwill impairment related to the Bison Midstream system;
• a $5.5 million noncash long-lived asset impairment associated with a DFW Midstream compressor station project that was terminated and replaced with a pipeline looping project.

Marcellus Shale Segment
The Mountaineer Midstream gathering system provides SMLP's midstream services for the Marcellus Shale reportable segment.  Segment adjusted EBITDA totaled $4.3 million for the fourth quarter of 2014, up 28.0% over the comparable period in 2013 primarily due to higher volume throughput across the Mountaineer Midstream system.  Volume throughput on the Mountaineer Midstream system averaged 459 MMcf/d in the fourth quarter of 2014, up 133.0% over the fourth quarter of 2013, and up 10.3% over the third quarter of 2014.  Volumes continued to increase during the fourth quarter of 2014 as Antero Resources Corp. ("Antero") continued to actively drill and connect new wells upstream of the Mountaineer Midstream system and as new compressor stations were commissioned by third parties. 

Williston Basin Segment
The Bison Midstream gathering system provides SMLP's midstream services for the Williston Basin reportable segment.  Segment adjusted EBITDA totaled $5.8 million for the fourth quarter of 2014, up 29.3% over the comparable period in 2013 primarily due to higher volume throughput across the Bison Midstream system, partially offset by lower commodity prices.  Volume throughput on the Bison Midstream system averaged 22 MMcf/d in the fourth quarter of 2014, up 57.1% over the fourth quarter of 2013, and up 4.8% over the third quarter of 2014.  Volume growth resulted primarily from the connection of new wells and the utilization of newly installed compression capacity.  Declining crude oil, NGL and natural gas prices negatively impacted the margins associated with Bison Midstream's percent-of-proceeds contracts during the fourth quarter of 2014. 

SMLP acquired the Bison Midstream system from Summit Investments in June 2013 for $248.9 million. Because Bison Midstream was owned by Summit Investments, it was considered an entity under common control.  Upon closing the Bison Drop Down in June 2013, SMLP recognized net assets of $303.2 million, the amount of Summit Investments' historical cost, which included $54.2 million of goodwill.  In connection with the sharp decline in commodity prices since the fourth quarter of 2014, SMLP reassessed the carrying value of the Bison Midstream system, including goodwill, and compared that to its fair value, including goodwill.  As a result of this evaluation, SMLP recognized a $54.2 million noncash goodwill impairment. 

Barnett Shale Segment
The DFW Midstream gathering system provides SMLP's midstream services for the Barnett Shale reportable segment.  Segment adjusted EBITDA totaled $14.9 million for the fourth quarter of 2014, down 7.7% over the comparable period in 2013 primarily due to $1.0 million of lower fuel retainage revenue associated with the settlement of a system imbalance in 2014.  Volume throughput on the DFW Midstream system averaged 372 MMcf/d in the fourth quarter of 2014, which was flat relative to the fourth quarter of 2013, and up 3.0% over the third quarter of 2014.  Volume throughput was driven primarily by the contribution from the Lonestar assets which were acquired on September 30, 2014.  In addition, during December 2014, customer production recommenced from several pad sites which had been temporarily shut-in for drilling and completion activities during most of 2014.  Fourth quarter 2014 volume throughput growth was partially offset by a planned, two-day shut-down of DFW Midstream's compressor stations for annual regulatory testing. 

Piceance Basin Segment
The Legacy Grand River and Red Rock Gathering systems provide SMLP's midstream services for the Piceance Basin reportable segment.  Segment adjusted EBITDA totaled $27.5 million for the fourth quarter of 2014, up 11.3% over the comparable period in 2013 primarily due to higher volume throughput across the Red Rock Gathering system, offset by volume throughput declines from the Legacy Grand River system and direct commodity pricing related to the sale of condensate.  Volume throughput for the Piceance Basin segment averaged 638 MMcf/d in the fourth quarter of 2014, down 0.6% from the fourth quarter of 2013 and down 4.3% from the third quarter of 2014.  Volume throughput declines were primarily a result of Encana's continued suspension of drilling activities in the Piceance Basin, which has been in effect since the fourth quarter of 2013.  The majority of the gathering agreements for the Piceance Basin segment include MVCs, which largely mitigate the financial impact associated with declining volumes.  As a result, the lower volume throughput during the fourth quarter of 2014 translated primarily into larger MVC shortfall payments, thereby minimizing the impact on adjusted EBITDA.  In addition, volume growth from Red Rock Gathering's customers continues to offset volume declines from the Legacy Grand River system. This shift in volume mix has translated into higher average gathering rates per Mcf.  

MVC Shortfall Payments  
SMLP billed its customers $33.9 million of MVC shortfall payments in the fourth quarter of 2014 because those customers did not meet their MVCs. Certain of SMLP's natural gas gathering agreements do not have credit banking mechanisms and as such, the MVC shortfall payments from these customers are accounted for as gathering revenue in the period that they are earned.  For the fourth quarter of 2014, SMLP recognized $19.5 million of gathering revenue associated with MVC shortfall payments from certain customers on the Grand River and DFW Midstream systems. Of the billings for MVC shortfall payments, $13.9 million was recorded as deferred revenue on SMLP's balance sheet because these customers have the ability to use these MVC shortfall payments to offset gathering fees related to future throughput in excess of future period MVCs.  MVC shortfall payment adjustments in the fourth quarter of 2014 totaled ($21.1) million and included adjustments related to future anticipated shortfall payments from certain customers on the Grand River, Bison Midstream and DFW Midstream systems. The net impact of these mechanisms increased adjusted EBITDA by $12.3 million in the fourth quarter of 2014.    

Capital Expenditures
For the three months ended December 31, 2014, SMLP recorded total capital expenditures of $24.2 million, including approximately $1.8 million of maintenance capital expenditures.  For the year ended December 31, 2014, SMLP recorded total capital expenditures of $128.3 million, including approximately $15.9 million of maintenance capital expenditures.

Development activities during the fourth quarter of 2014 were related primarily to the ongoing expansion of compression capacity on the Bison Midstream system and pipeline construction projects to connect new receipt points on the Grand River, Bison Midstream and DFW Midstream systems.  

Capital & Liquidity
As of December 31, 2014, SMLP had total liquidity (cash plus undrawn borrowing capacity under its $700.0 million revolving credit facility) of $518.4 million.  Based upon the terms of SMLP's revolving credit facility and total outstanding debt of $808.0 million, total leverage (net debt divided by EBITDA) was approximately 3.9 to 1 as of December 31, 2014.

Revised 2015 Financial Guidance
Commodity prices have decreased by approximately 30% to 50% since SMLP announced its 2015 guidance in early November 2014.  As a result, SMLP is revising its 2015 adjusted EBITDA guidance from $215.0 million to $230.0 million to a new range of $195.0 million to $210.0 million. This revised financial guidance reflects SMLP's (i) direct exposure to current crude oil, NGL and natural gas commodity prices for the balance of 2015, and (ii) indirect exposure to current commodity prices, which we believe will lead to lower drilling activity upstream of SMLP's gathering systems. 

SMLP's revised 2015 financial guidance excludes the effect of any third party acquisitions or potential drop down transactions with Summit Investments.  SMLP is reaffirming its expectation of completing $400.0 million to $800.0 million of acquisitions from Summit Investments, annually through 2017. 

Quarterly Distribution
On January 22, 2015, the board of directors of SMLP's general partner declared a quarterly cash distribution of $0.56 per unit on all outstanding common and subordinated units, or $2.24 per unit on an annualized basis, for the quarter ended December 31, 2014.  This distribution was paid on February 13, 2015 to unitholders of record as of the close of business on February 6, 2015. This was SMLP's ninth consecutive quarterly distribution increase and represents an increase of $0.08 per unit, or 16.7%, over the distribution paid for the fourth quarter of 2013 and an increase of $0.02 per unit, or 3.7%, over the distribution paid for the third quarter of 2014.

Fourth Quarter & Full Year 2014 Earnings Call Information
SMLP will host a conference call at 10:00 a.m. Eastern on Friday, February 27, 2015, to discuss its quarterly and annual operating and financial results.  Interested parties may participate in the call by dialing 847-619-6547 or toll-free 888-895-5271 and entering the passcode 38990823.  The conference call will also be webcast live and can be accessed through the Investors section of SMLP's website at www.summitmidstream.com.

A replay of the conference call will be available until March 13, 2015 at 11:59 p.m. Eastern, and can be accessed by dialing 888-843-7419 and entering the replay passcode 38990823#.  An archive of the conference call will also be available on SMLP's website.

Use of Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). We also present EBITDA, adjusted EBITDA, distributable cash flow and adjusted distributable cash flow. We define EBITDA as net income, plus interest expense, income tax expense, and depreciation and amortization, less interest income and income tax benefit.  We define adjusted EBITDA as EBITDA plus adjustments related to MVC shortfall payments, impairments and other noncash expenses or losses, less other noncash income or gains.  We define distributable cash flow as adjusted EBITDA plus cash interest income, less cash interest paid, senior notes interest, cash taxes paid and maintenance capital expenditures. We define adjusted distributable cash flow as distributable cash flow plus or minus other unusual or non-recurring expenses or income. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies.  Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.  Reconciliations of GAAP to non-GAAP financial measures are attached to this release.

Comparability Related to Drop Down Transactions and Acquisitions
With respect to drop down transactions and third-party acquisitions, SMLP's historical results of operations may not be comparable to its future results of operations for the reasons described below:

• SMLP acquired Red Rock Gathering from a subsidiary of Summit Investments in March 2014. SMLP accounted for the Red Rock Drop Down on an "as-if pooled" basis because the transaction was executed by entities under common control. As such, SMLP's consolidated financial statements reflect Summit Investments' fair value purchase accounting and the results of operations of Red Rock Gathering since October 23, 2012 as if SMLP had owned and operated during the common control period;
• SMLP acquired Bison Midstream from a subsidiary of Summit Investments in June 2013. SMLP accounted for the Bison Drop Down on an "as-if pooled" basis because the transaction was executed by entities under common control. As such, SMLP's consolidated financial statements reflect Summit Investments' fair value purchase accounting and the results of operations of Bison Midstream since February 16, 2013 as if SMLP had owned and operated during the common control period;
• SMLP's consolidated financial statements reflect the results of operations of Mountaineer Midstream since June 22, 2013.

About Summit Midstream Partners, LP
SMLP is a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in North America. SMLP currently provides natural gas gathering, treating and processing services pursuant to primarily long-term and fee-based natural gas gathering and processing agreements with customers and counterparties in four unconventional resource basins: (i) the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia; (ii) the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota; (iii) the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and (iv) the Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in western Colorado and eastern Utah. SMLP owns and operates more than 2,300 miles of pipeline and over 250,000 horsepower of compression. SMLP is headquartered in The Woodlands, Texas with regional corporate offices in Denver, Colorado and Atlanta, Georgia.

About Summit Midstream Partners, LLC
Summit Midstream Partners, LLC ("Summit Investments") indirectly owns a 49.5% limited partner interest in SMLP and indirectly owns and controls the general partner of SMLP, Summit Midstream GP, LLC, which has sole responsibility for conducting the business and managing the operations of SMLP. Summit Investments owns, operates and is developing various crude oil, natural gas, and water-related midstream energy infrastructure assets in the Bakken Shale in North Dakota, the DJ Niobrara Shale in Colorado, and the Utica Shale in Ohio. Summit Investments also owns a 40% interest in a joint venture that is developing natural gas gathering and condensate stabilization infrastructure in the Utica Shale in southeastern Ohio. Summit Investments is a privately held company controlled by Energy Capital Partners II, LLC, and certain of its affiliates.

Forward-Looking Statements
This press release includes certain statements concerning expectations for the future that are forward-looking within the meaning of the federal securities laws. Forward-looking statements contain known and unknown risks and uncertainties (many of which are difficult to predict and beyond management's control) that may cause SMLP's actual results in future periods to differ materially from anticipated or projected results.  An extensive list of specific material risks and uncertainties affecting SMLP is contained in its 2013 Annual Report on Form 10-K as updated by our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2014 and as amended and updated from time to time. Any forward-looking statements in this press release are made as of the date of this press release and SMLP undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.

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SOURCE Summit Midstream Partners, LP

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