Summit Midstream Partners, LP Reports Third Quarter 2023 Financial and Operating Results

HOUSTON, Nov. 3, 2023 /PRNewswire/ -- Summit Midstream Partners, LP (NYSE: SMLP) ("Summit", "SMLP" or the "Partnership") announced today its financial and operating results for the three months ended September 30, 2023.

Highlights

• Third quarter 2023 net income of $3.9 million, adjusted EBITDA of $72.8 million, cash flow available for distributions ("Distributable Cash Flow" or "DCF") of $38.5 million and free cash flow ("FCF") of $21.9 million
• Adjusted EBITDA of $72.8 million represents ~24% quarter-over-quarter growth and ~$290 million run-rate
• Connected 77 wells during the third quarter, resulting in 227 wells connected year-to-date and remain on pace to connect a total of ~300 wells by the end 2023
• Reiterating fourth quarter Adjusted EBITDA guidance of $75 million to $85 million
• Active customer base with six drilling rigs and more than 165 DUCs behind our systems
• Executed 15-year contract extension dedicating more than 30,000 leased acres with a key customer in the Williston
• Constructing initial phase of compression project to provide low-pressure service on the Summit Midstream Utica ("SMU") system
• Launched strategic alternatives review with the goal of maximizing unitholder value

Management Commentary

Heath Deneke, President, Chief Executive Officer, and Chairman, commented, "Summit delivered solid third quarter 2023 financial and operating results that include a significant quarter-over-quarter increase in Adjusted EBITDA and operational progress that supports our projection of achieving approximately $300 million of LTM Adjusted EBITDA by mid-2024. As we look ahead, activity levels behind our systems remain strong with more than 220 new wells scheduled to be turned in line from the fourth quarter of 2023 through the first half of 2024.

We had some solid commercial wins during the quarter, including a long-term contract extension in the Williston Basin of more than 30,000 contiguous and largely undeveloped acreage in Williams County. With this contract extension, we expect our customer to begin a one-rig development program in mid-2024. In addition, we announced that we are constructing the initial phase of a broader centralized compression project to add low-pressure service to our SMU system. We expect this first phase to be in-service by year-end, which will result in an incremental compression fee on approximately 20 MMcf/d beginning in the first quarter of 2024. We continue to work with our customer on the timing of adding compression to the rest of the system.

As previously announced, our Board of Directors launched a strategic alternatives review with the goal of maximizing unitholder value.  These alternatives may include, but are not limited to, continued execution of the Partnership's business plan, sale of assets, refinancing parts or the entirety of its capital structure, sale of the Partnership by merger or cash, or any combination of these and other alternatives. We are very pleased with the continued level of interest from third parties for potential transactions‎, ranging from the sale of specific assets to consideration for the entire Partnership.

While the Board conducts its review, the Partnership remains focused on its operational performance and execution of its business strategy to increase unitholder value."

Business Highlights

SMLP's average daily natural gas throughput for its wholly owned operated systems increased 12% to 1,352 MMcf/d, and liquids volumes increased 20% to 85 Mbbl/d, relative to the second quarter of 2023. OGC natural gas throughput increased from 781 MMcf/d to 870 MMcf/d, an 11% increase quarter-over-quarter, and generated $11.9 million of adjusted EBITDA, net to SMLP, for the third quarter of 2023. Double E Pipeline gross volumes transported increased from 243 MMcf/d to 327 MMcf/d, a 34% increase quarter-over-quarter, and generated $5.9 million of adjusted EBITDA, net to SMLP, for the third quarter of 2023.

Natural gas price-driven segments:

• Natural gas price-driven segments had combined quarterly segment adjusted EBITDA of $49.1 million, representing 17.4% sequential growth, and combined capital expenditures of $3.1 million in the third quarter of 2023.
• Northeast segment adjusted EBITDA totaled $27.8 million, an increase of $7.6 million from the second quarter 2023, primarily due to a 19.6% increase in volume on our wholly owned systems and an 11% increase in volume from our OGC joint venture. During the third quarter, 14 new wells were brought online behind our wholly owned Summit Midstream Utica ("SMU") system and eight new wells were connected behind our OGC joint venture. The 14 new wells behind our SMU system were brought online throughout the third quarter. As such, current operated volumes are trending approximately 60 MMcf/d higher than third quarter volumes. We began constructing the initial phase of a centralized compression project behind the SMU system with an expected year-end in-service date. This project adds compression to approximately 20 MMcf/d of volume, resulting in an incremental compression fee beginning in the first quarter of 2024. We continue to evaluate the timing of adding compression on the rest of the system with our key customer. We expect 11 new wells to be connected during the fourth quarter, all of which have already been connected. There is currently two rigs running and 14 DUCs behind our systems.
• Piceance segment adjusted EBITDA totaled $15.3 million, an increase of $0.9 million from the second quarter of 2023, primarily due to a 5.4% increase in volume throughput driven by 12 wells brought online during the quarter, partially offset by natural production declines. We expect approximately 20 new wells to be connected during the fourth quarter, of which eight have already been connected. There are currently 13 DUCs behind the system.
• Barnett segment adjusted EBITDA totaled $6.1 million, a decrease of $1.2 million relative to the second quarter of 2023, primarily due to approximately $1.8 million in other revenue recognized during the second quarter. Volumes decreased 6.6%, primarily due to the continuation of production being temporarily shut-in by one of our customers. We estimate these curtailments impacted segment volumes by approximately 20 MMcf/d during the quarter. Our anchor customer completed six new wells in September that have increased segment volumes to approximately 190 MMcf/d currently. While we do not expect any new wells during the fourth quarter, our anchor customer is expected to bring online 15 to 20 new wells during the first half of 2024. There is currently one rig running and 21 DUCs behind the system.

Oil price-driven segments

• Oil price-driven segments generated $30.8 million of combined segment adjusted EBITDA, representing 38.8% sequential growth, and had combined capital expenditures of $13.7 million.
• Permian segment adjusted EBITDA totaled $5.8 million, an increase of $0.5 million from the second quarter of 2023, primarily due to an increase in proportionate EBITDA from our Double E joint venture.
• Rockies segment adjusted EBITDA totaled $25.0 million, an increase of $8.2 million relative to the second quarter of 2023, primarily due to a 19.7% increase in liquids volume throughput, an 18.2% increase in natural gas volume throughput and higher realized commodity prices. There were 37 new wells connected during the quarter, including six in the DJ Basin and 31 in the Williston Basin. We expect more than 50 new wells to be connected during the fourth quarter, including more than 40 new wells in the DJ Basin that are expected to reach peak production in the second quarter of 2024. We executed a 15-year contract extension with a key customer in the Williston Basin, which includes more than 30,000 dedicated leased acres in southern Williams County. We expect this customer to begin a one-rig development program in mid-2024. In addition, one of our anchor customers in the Williston announced the acquisition of our other anchor customer during the quarter. While integration has historically delayed development for a few months, we are excited about the highly contiguous pro forma dedicated acreage position. We expect this will enable our anchor customer to develop more three-mile laterals to its historic two-mile laterals. There are currently three rigs running and approximately 117 DUCs behind the systems.

The following table presents average daily throughput by reportable segment for the periods indicated:

The following table presents adjusted EBITDA by reportable segment for the periods indicated:

Capital Expenditures

Capital expenditures totaled $17.7 million in the third quarter of 2023, inclusive of maintenance capital expenditures of $2.8 million. Capital expenditures in the third quarter of 2023 were primarily related to pad connections and DJ Basin integration projects in the Rockies segment.

Capital & Liquidity

As of September 30, 2023, SMLP had $17.1 million in unrestricted cash on hand and $295 million drawn under its $400 million ABL Revolver and $100.7 million of borrowing availability, after accounting for $4.3 million of issued, but undrawn, letters of credit. As of September 30, 2023, SMLP's gross availability based on the borrowing base calculation in the credit agreement was $715 million, which is $315 million greater than the $400 million of lender commitments to the ABL Revolver. As of September 30, 2023, SMLP was in compliance with all financial covenants, including interest coverage of 2.2x relative to a minimum interest coverage covenant of 2.0x and first lien leverage ratio of 1.2x relative to a maximum first lien leverage ratio of 2.5x. As of September 30, 2023, SMLP reported a total leverage ratio of approximately 5.5x.

As of September 30, 2023, the Permian Transmission Credit Facility balance was $147.5 million, a reduction of $2.7 million relative to the June 30, 2023 balance of $150.2 million due to scheduled mandatory amortization. The Permian Transmission Term Loan remains non-recourse to SMLP.

MVC Shortfall Payments

SMLP billed its customers $7.2 million in the third quarter of 2023 related to MVC shortfalls. For those customers that do not have MVC shortfall credit banking mechanisms in their gathering agreements, the MVC shortfall payments are accounted for as gathering revenue in the period in which they are earned. In the third quarter of 2023, SMLP recognized $7.2 million of gathering revenue associated with MVC shortfall payments. SMLP had no adjustments to MVC shortfall payments in the third quarter of 2023. SMLP's MVC shortfall payment mechanisms contributed $7.2 million of total adjusted EBITDA in the third quarter of 2023.

Quarterly Distribution

The Board of Directors of SMLP's general partner continued to suspend cash distributions payable on its common units and on its Series A fixed-to-floating rate cumulative redeemable perpetual preferred units (the "Series A Preferred Units") for the period ended September 30, 2023. Unpaid distributions on the Series A Preferred Units will continue to accumulate.

Third Quarter 2023 Earnings Call Information

SMLP will host a conference call at 10:00 a.m. Eastern on November 3, 2023, to discuss its quarterly operating and financial results. The call can be accessed via teleconference at: Q3 2023 Summit Midstream Partners LP Earnings Conference Call (https://register.vevent.com/register/BIc42a8b051b4d40e8902304edf61e8ef7). Once registration is completed, participants will receive a dial-in number along with a personalized PIN to access the call. While not required, it is recommended that participants join 10 minutes prior to the event start. The conference call, live webcast and archive of the call can be accessed through the Investors section of SMLP's website at www.summitmidstream.com. 

Upcoming Investor Conference

Members of SMLP's senior management team will attend the 2023 Bank of America Leverage Finance Conference taking place on November 28–29, 2023 and the 2023 Wells Fargo Midstream and Utilities Symposium taking place on December 6–7, 2023. The presentation materials associated with these events will be accessible through the Investors section of SMLP's website at www.summitmidstream.com prior to the beginning of the conference.

Use of Non-GAAP Financial Measures

We report financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). We also present adjusted EBITDA, Distributable Cash Flow, and Free Cash Flow, non-GAAP financial measures.

Adjusted EBITDA

We define adjusted EBITDA as net income or loss, plus interest expense, income tax expense, depreciation and amortization, our proportional adjusted EBITDA for equity method investees, adjustments related to MVC shortfall payments, adjustments related to capital reimbursement activity, unit-based and noncash compensation, impairments, items of income or loss that we characterize as unrepresentative of our ongoing operations and other noncash expenses or losses, income tax benefit, income (loss) from equity method investees and other noncash income or gains. Because adjusted EBITDA may be defined differently by other entities in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other entities, thereby diminishing its utility.

Management uses adjusted EBITDA in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that adjusted EBITDA may provide external users of our financial statements, such as investors, commercial banks, research analysts and others, with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business.

Adjusted EBITDA is used as a supplemental financial measure to assess:

• the ability of our assets to generate cash sufficient to make future potential cash distributions and support our indebtedness;
• the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
• our operating performance and return on capital as compared to those of other entities in the midstream energy sector, without regard to financing or capital structure;
• the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities; and
• the financial performance of our assets without regard to (i) income or loss from equity method investees, (ii) the impact of the timing of MVC shortfall payments under our gathering agreements or (iii) the timing of impairments or other income or expense items that we characterize as unrepresentative of our ongoing operations.

Adjusted EBITDA has limitations as an analytical tool and investors should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example:

• certain items excluded from adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as an entity's cost of capital and tax structure;
• adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
• although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.

We compensate for the limitations of adjusted EBITDA as an analytical tool by reviewing the comparable GAAP financial measures, understanding the differences between the financial measures and incorporating these data points into our decision-making process.

Distributable Cash Flow

We define Distributable Cash Flow as adjusted EBITDA, as defined above, less cash interest paid, cash paid for taxes, net interest expense accrued and paid on the senior notes, and maintenance capital expenditures.

Free Cash Flow

We define free cash flow as distributable cash flow attributable to common and preferred unitholders less growth capital expenditures, less investments in equity method investees, less distributions to common and preferred unitholders. Free cash flow excludes proceeds from asset sales and cash consideration paid for acquisitions. 

We do not provide the GAAP financial measures of net income or loss or net cash provided by operating activities on a forward-looking basis because we are unable to predict, without unreasonable effort, certain components thereof including, but not limited to, (i) income or loss from equity method investees and (ii) asset impairments. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated estimate and its impact on our GAAP performance and cash flow measures could vary materially based on a variety of acceptable management assumptions.

About Summit Midstream Partners, LP

SMLP is a value-driven 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 the continental United States. SMLP provides natural gas, crude oil and produced water gathering, processing and transportation services pursuant to primarily long-term, fee-based agreements with customers and counterparties in five unconventional resource basins: (i) the Appalachian Basin, which includes the Utica and Marcellus shale formations in Ohio and West Virginia; (ii) the Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota; (iii) the Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado and Wyoming; (iv) the Fort Worth Basin, which includes the Barnett Shale formation in Texas; and (v) the Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado. SMLP has an equity method investment in Double E Pipeline, LLC, which provides interstate natural gas transportation service from multiple receipt points in the Delaware Basin to various delivery points in and around the Waha Hub in Texas. SMLP also has an equity method investment in Ohio Gathering, which operates extensive natural gas gathering and condensate stabilization infrastructure in the Utica Shale in Ohio. SMLP is headquartered in Houston, Texas.

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 include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements and may contain the words "expect," "intend," "plan," "anticipate," "estimate," "believe," "will be," "will continue," "will likely result," and similar expressions, or future conditional verbs such as "may," "will," "should," "would," and "could", including the estimated closing date of the acquisitions, sources and uses of funding, the benefits of the acquisitions to us and any related opportunities. In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies and possible actions taken by us or our subsidiaries are also forward-looking statements. Forward-looking statements also 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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2023, 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.

SOURCE Summit Midstream Partners, LP