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spk01: Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the DT midstream Q1 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Todd Lorman, Director of Investor Relations. You may begin.
spk06: Good morning and welcome, everyone. Before we get started, I would like to remind you to read the safe harbor statement on page two of the presentation, including the reference to forward-looking statements. Our presentation also includes references to non-GAF financial measures. Please refer to the reconciliations to GAF contained in the appendix. Joining me this morning are David Slater, President and CEO, and Jeff Jewell, Executive Vice President and CFO. I'll now turn it over to David to start the call. Thank you, Todd, and good morning, everyone, and thanks for joining.
spk08: On today's call, I'll start by highlighting some of our key results this quarter, then discuss the constructive fundamentals that are playing out around our assets and our execution on previously announced projects. I'll pass it over to Jeff to review our first quarter financial results, and then I will close with some remarks on our future opportunities. So with that, we had a strong first quarter performance that puts us firmly on track for our plan for the year, and we are highly confident in our ability to achieve our 2022 guidance. Our commercial team was very busy advancing our investment plan. On our Appalachian Gathering system, we reached agreements with two existing customers that will result in an attractive incremental expansion with approximately $200 million a day of added system capacity, a significant term extension, and an expansion of dedicated acreage. On our Nexus pipeline, we executed a five-year contract for $100 million a day of capacity with an investment-grade shipper at attractive rates. We're also advancing our ESG focused initiatives, which are a priority for us. As Jeff will cover in more detail, we successfully locked in the interest rates and extended the term on a portion of our variable rate debt. So it's been a very busy and productive quarter moving the company forward. Turning to the fundamentals, the environment for natural gas continues to remain strong. The geopolitical situation with the Russia-Ukraine war has highlighted the importance of energy security, both domestically and abroad. The role for U.S. natural gas in the form of LNG will be critical in supporting Europe and ending Europe's dependency on Russian energy supplies. U.S. LNG can also displace coal globally as a fuel source for electric generation, which supports worldwide decarbonization efforts in a timely and cost efficient way. BTAM's assets are very well positioned to enable US LNG export growth, both out of Appalachia and the Hainesville. We currently have approximately two BCF a day of access to LNG export markets, which our shippers have under long-term contracts. Our LEAP pipeline flows gas to three export terminals on the Gulf Coast, and our Stonewall pipeline provides a critical pathway for Appalachian gas to the Cove Point terminal on the East Coast and to the pipelines that serve the Gulf Coast LNG corridor. The strong gas price environment is also benefiting many of our customers, and we expect it to continue to improve their cash flows and credit metrics, making these customers stronger, which will provide additional flexibility to grow production over time. We are seeing a response to the strong fundamentals in both of the basins where we operate, In the Haynesville, production is continuing at record levels and strong rig activity points to robust future growth. Projections are for 7 to 8 billion cubic feet a day of growth in both Haynesville supply and Louisiana Gulf Coast LNG demand between now and 2030. This is translating to very strong demand for pipeline capacity from the Haynesville to the Gulf Coast. The price environment is also sending a strong signal to drill in Appalachia. With takeaway capacity constraints in the basin, there is a high demand for any existing capacity or easily expanded capacity to get gas further downstream towards markets. I will touch a little bit more on the specific opportunities created by the fundamental environment later on the call. Before I pass it over to Jeff, I wanted to give an update on our previously announced expansion projects. which will begin entering service starting the second quarter of this year. It's further detailed on slide 14 of the presentation. Our team is highly focused on executing these projects and all major projects remain on track. We have ordered critical long lead equipment and continue to proactively manage supply chain situation. I'll now pass it over to Jeff to walk you through our quarterly financials and outlook.
spk07: Thanks, David. Good morning, everyone. Our first quarter results put us firmly on track for our full year 2022 plan. In the first quarter, we delivered overall adjusted EBITDA of $191 million. This strong first quarter performance, combined with balance of year growth from our new project and planned growth in our existing businesses, makes us highly confident that we will achieve our full year 2022 adjusted EBITDA guidance. we are also well positioned to achieve our early outlook for 2023. Regarding our quarterly segment-level performance, we had largely consistent results for both our pipeline and gathering segments compared to the fourth quarter of 2021. Pipeline segment results include higher contribution from our pipeline joint ventures, offset by lower short-term contracted volumes on Stonewall, Our gathering segment results for the first quarter included the impact of planned maintenance on our Haynesville system. Operationally, our total gathering volumes across both the Haynesville and Appalachia averaged 2.9 billion cubic feet per day and included the continuing benefit of the new customer volumes on our Haynesville system, which were pulled forward into 2021. Now turning to our balance sheet, we are always evaluating ways to improve on an already strong position, which is why we recently took action with a bond issuance in the investment grade market, which effectively converted 60% of our seven-year term loan to a 10-year senior note. The execution of this leverage neutral transaction fixes the interest rate on a large portion of our floating debt, and extends our weighted average debt maturity out to eight years. I'll now turn it back over to David for more details on our growth opportunity and recent advancements in our ESG agenda.
spk08: Thanks, Jeff. Less than a year since our spinoff from DTE, we have committed over 50% of our $1.2 to $1.7 billion five-year investment plan to organic projects at attractive returns. In Hainesville, the strong fundamental environment continues to provide tailwinds in our pursuit of a Phase II Hainesville system expansion, which remains a top priority for our commercial team. We believe that new projects are needed to facilitate the delivery of Hainesville gas to the LNG export terminals, and expansions of existing systems such as LEAP is quicker and a lower risk solution than a Greenfield build. In Appalachia, we continue to have discussions on the Nexus Open Season, and we'll keep pursuing favorable recontracting opportunities at improved rates. In our emerging third business platform, we continue our disciplined work to advance our CCS project in the Louisiana area towards an EPA Class VI permit application filing. We will continue to prioritize our ESG leadership by offering our customers low-carbon services For example, we have joined with Chenier to monitor emissions at our Hainesville operations to support the ability to carbon tag future LNG cargos. We're also putting the finishing touches on our inaugural sustainability report, which we plan to publish later this month. So, in summary, I feel really good about the start to the year, and I am confident that we are on track to deliver on our full year 22 guidance and achieve our 2023 early outlook. The very strong fundamentals surrounding our assets has me very optimistic about the durability of our portfolio, which supports our future growth opportunities and the company's performance over the long term. We can now open up the line for questions.
spk01: As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our first question today is from Jeremy Tonette with JP Morgan. Your line is open.
spk02: hi good morning morning jeremy uh with the with the new nexus contract there i was just wondering if you could provide a bit more any details on the rates there or how the environment looks uh you know as you're signing imagine the rates would look strong given the scarcity of takeaway coming out of appalachia but any color you could provide there would be helpful thanks absolutely jeremy um you're you're correct we're seeing
spk08: More interest in any available capacity that's in the network that's uncontracted today. Given the strong price signals for Appalachian producers to drill, they don't want to drill and flood the base, and they want to drill and go to a market. So that's been really positive. The contract that we announced is with a strong investment-grade driller in Appalachia. All that information will become public, Jeremy, for you guys to look at on the Nexus website through the FERC process. But, yes, we're seeing strong rates. I'll just say it that way. Rate escalation, as we have been talking over the last 12 months, that continues. So we're really happy about that. We look to do more of that in conjunction with working through the details of – You know the nexus open season we're really looking at how can we expand the export capacity of the base and incrementally with an easy low risk low cost expansion opportunity.
spk02: Got it. Thanks for that. And then turning, I guess, to the Hainesville, just wondering, you know, there seems to be competition down there for new pipe. But just curious, for the LEAP system, given its footprint, given the expansion capabilities, just wondering, where could the system grow to over five years from now, you think, given the profile for Hainesville production growth as it stands now?
spk08: Yeah, that's a great question, Jeremy. And certainly, as I said in our opening remarks, one of our top priorities with the commercial team. But if you really just step back, you know, you can see that there's a really strong demand like that. That 78 BCF is real over the next 78 years. So when we look at the assets, our ability to expand, we can expand quickly and incrementally with compression, so it's low risk and quick to bring it online for our customers so we can ramp with the production. But when we get beyond that two BCF a day with compression, we can go up to three BCF a day as we begin to loop the system. So again, doing it all right away inside our footprint. Again, it can be done incrementally as the demand is there and the producers are ready to make those commitments. So we're really excited about it, and stay tuned as we can sort of continue to progress that beyond what we announced on the year-end call. We're in flight now, expanding the system for $300 million a day, and, again, look to keep adding increments as we progress here with customers.
spk02: Got it. That's helpful. And just one last one, if I could, as it relates to – carbon capture development within Louisiana. Any other thoughts you could provide, I guess, on timeline when this could become more real and just really, you know, classics wells, Louisiana seeking, you know, primacy there in thoughts on timeline or anything else on this topic that you could provide more color on would be helpful.
spk08: Sure. So, you know, we're the way I'll describe it, Jeremy, we're just we're following our very disciplined development plan. You know, the next major milestone for us will be that Class 6 application. I think as we've talked before, Louisiana is trying to get primacy. Our plan is we will file, regardless of whether Louisiana has primacy or not, just because these applications take some time to go through the regulatory process. anywhere from two to three years. So getting this filed this year is a high priority for us. But we want to file it with high quality information. You know, it's a very rigorous process. So again, that's part of that discipline development that the team is adhering to where we're just methodically doing all the homework and the due diligence in the right way so that when we do file that application, it's a high quality application. that the regulators know what's going to be in it before we file it, and it can progress through the process in a smooth fashion. So that's how we're thinking about it. It's somewhat new. A lot of other companies are sort of in the same position we're in. And it's also somewhat of a – as you're acquiring the rights that you need to do this, again, that discipline approach, we just want to be very cognizant of getting all the pieces together we put that application out there in the public domain so that we have no issues along the way.
spk02: Got it. That's helpful. I'll leave it there. Thanks.
spk08: No problem. Thanks, Jeremy.
spk01: The next question is from Michael Bloom with Wells Fargo. Your line is open.
spk00: Thanks. Good morning, everyone. I want to go back to a comment, just some comments you made about supply chain and cost issues as it relates to the growth projects. I just want to make sure I understand. Are you saying that kind of in spite of those issues and inflation that we're seeing, the cost for your projects really hasn't changed materially?
spk08: So when we FID'd the projects, we factored in what I'll call the supply chain realities that we were seeing in the market. And really, what I'm saying here, Michael, just confirming that those projects remain on track, on budget. We knew there was going to be some pressure, so that was factored into the capital and the commercial structure when we made the investment decision. And we're just being really mindful of that because of all the pressure that we all see in the supply chain to keep our eyes on that so that we don't have any project changes along the way here.
spk00: Got it. That makes sense. Thank you. And then also just wanted to ask about the gathering segment. Year over year, you know, the volumes are up pretty substantially, I think like 18%. But your EBITDA is up only modestly year over year. So I'm wondering if you could just walk us through that dynamic and also whether we'll eventually see those higher volumes translate to cash flows. Thanks. Thanks.
spk07: Hey, Michael. It's Jeff Jewell. Yeah, one thing when you think about year over year, and you're referring to first quarter, first quarter, is remember there's public company costs that's playing through. That's why in the deck, you know, we're sort of guiding people, you know, the fourth quarter over the first quarter. So that's the dynamic you're seeing. But, of course, when you look at our 2022 guidance and then even our 2023 guidance, you can see the planned growth. both the new projects and within the business, that that growth, you know, is planned through both of those. David, do you want to add on to that?
spk08: Yeah, that's really the answer there is that you're comparing a Q1 inside DTE where we didn't have the standalone incremental public company costs. So that's really the delta there that you're looking at. And then maybe I'm just going to pull it back. I'm going to pull back to the higher level is that, You know, on the ERN call when we announced the Haynesville system expansion, and I'll just talk on the gathering side, just to put it in perspective, we announced a 25% increase in our gathering system in that expansion. It was $500 million a day. So just to put it into perspective, is our Haynesville gathering system growing with production? I think the answer is clear that it is. We're going to grow that system by about 25% with that announced expansion.
spk00: Perfect. Thank you so much. You're welcome.
spk01: The next question is from John McKay with Goldman Sachs. Your line is open.
spk05: Hey, everyone. Good morning. Thanks for the time. Maybe I just wanted to follow up on kind of some of the Hainesville stuff. And I'm sorry if you guys said this and I missed it, but could you just talk a little bit more about Just getting through the maintenance and kind of maybe where we are sitting right now. I know last quarter you also talked about some, you know, some of the shorter term contracts that are pulled in the fourth quarter. Just really trying to think about what, you know, the second quarter plus trajectory could look like there. Thanks.
spk08: Yeah, John, it's David. Yeah, so the way I think about it at a high level quarter over quarter, we have relatively flat volumes on the Hainesville system. So we have the Hainesville system running at a very high utilization right now. And, yes, I think we noted that we had some planned maintenance that showed up in March in the first quarter, and that was contemplated in our guidance. That was what we had in our plan. You know, we have significant expansions that are underway, and those are detailed out, I believe, on slide 14 in the deck. that sort of walks the growth that will occur second quarter, third quarter, fourth quarter this year, and we ramped that up. And, you know, so we've got a significant expansion that we're in flight on right now that we'll be building out on. And, again, it's fully contracted with an anchor shipper. And just to remind everybody that, you know, we had a really strong fourth quarter last year. We pulled forward into the fourth quarter last a number of new customers that came on the system that we didn't expect were going to come on until kind of the end of the year. So that's why you see that real strong growth Q3 to Q4. And basically they all came on at Q4. So we're running relatively flat as we work through the expansions now in 2022 and have the system running at a very high utilization right now.
spk05: Okay. Thanks for that. Maybe just just to confirm there. So if the Haynesville gathering expansion is more of a third quarter in service, second quarter is going to be relatively flatter on the volume side. Is that fair?
spk08: Yeah, I'm just, I'm just glancing at that slide that I just pointed to, just to remind myself on the quarters here, but, but yeah, most of the Haynesville gathering shows up in Q3 of 2022. Now we're going to, we're going to be, um, We're going to be seeing other expansions that we previously announced showing up in Q2, but not on the Haynesville system.
spk05: Okay. That's all right. Thanks for that. Maybe just as one more one, we've seen M&A on the GNP side, kind of more bolt-on GNP M&A pick up a little bit. Just wondering, you know, if you guys have looked at any of that, what your appetite might be, and how you're kind of thinking about that overall. Thanks.
spk08: Sure. Yeah, so we're aware of all the assets that are in the market that have been in the market and are currently in the market. Our approach right now on that is, again, just taking a very disciplined look at things and they would have to strategically fit and they obviously have to have value creation for us. So that's kind of our prerogative on that. We're flush with greenfield opportunities right now. very focused on executing all of the announced projects and pursuing new greenfield projects. And I think those are very creative and very good investments for the investors with strong returns when you're doing it on top of your existing assets. So we're always trying to be good stewards of the capital that we have here and making sure that we're getting it to the place that provides the highest shareholder value at the end of the day. So that's how we think about M&A right now in the current environment that we're in. And, you know, so we're looking and we're aware of it and open to it, but it has to deliver at the end of the day the value that we expect.
spk05: That's great. Thanks for the time.
spk08: Yep.
spk01: The next question is from Robert Mosca with Mizuho Securities. Your line is open.
spk04: Hi, guys. Thanks for taking my question. Just wondering if there's any more juice to squeeze on some of these northeast gathering expansions, just given the regional pipeline constraints. And can you remind us how AGS is situated so that it can get incremental volume out of the basin? And could you do something similar on Susquehanna? Thanks.
spk08: Yeah. Thanks for the question, Rob. So, I mean, we're really pleased with what we announced on AGS. And, again, just to put it into context, between what we announced today and what we announced, I believe, late last year, we're growing that system 35% over the next year or two. So that is really strong growth in Appalachia. And I think you asked exactly the correct question, Rob, where is that gas going? How can those producers drill that up and get it out? Just to remind everybody, AGS connects directly to Nexus. So Nexus is a freeway out of the basin for AGS. It's directly connected to Nexus. And AGS is also directly connected to our Stonewall pipeline, which, again, we announced previously a new firm contract on Stonewall. It's another Avenue out of Appalachia that has open capacity available. So between those two exit freeways, the producers on AGS are able to step up their production. So we're extremely happy with that. I mean, that is a very great outcome for us and very pleased to work with our key customers there. You know, I think as you know, one of our major customers on Stonewall is Intero. And, you know, Intero has a long-term firm commitment to Cove Point. And Stonewall is the primary avenue for their gas to get to Cove Point. And so we're really excited about what's happening on AGS right now.
spk04: Got it. That's helpful. And I guess turning to financing, just wondering if you have any plans to term out the remaining $400 million on your Term B loan? And should we take refinancing to mean that $2.7 billion of long-term debt is kind of what you view as a comfortable indebtedness level longer term?
spk07: Yeah. Hi, Rob. This is Jeff. Good question. What we When we did that transaction, again, we wanted to make a significant move in converting the floating to the fixed, so we've executed on that. But we also wanted to maintain the strategic optionality that the term loan B provides you because, you know, it's got that prepay feature. And as David talked about, we've got over 60% of our growth capital committed. And so, again, as the commercial team continues to – firm up our growth capital, then we'll reassess what do we want to do with the rest of that term loan fee. So that sort of provides you a path and sort of a view of what we're thinking there. Then from a capital structure perspective, yeah, we're very comfortable with the overall debt levels that we have, because as we've talked about, our growth capital, aligned with the opportunity that we have, that fits inside of our free cash flow. So we're able to self-fund all of our our growth, therefore we don't need external capital. That's why we're very comfortable with the overall size of our capital structure.
spk04: Got it. Thanks, everyone. Have a great day. Yeah, you too, Rob.
spk01: Again, that is star one if you'd like to ask a question. Our next question is from James Carriker with U.S. Capital Advisors. Your line is open.
spk03: Hi, thanks for the question. Just wondering, with the takeaway constraints out of Appalachia, we've seen a number of Permian pipes announce some compression expansions. Is that something that you could do for Nexus to kind of increase the takeaway?
spk08: Yeah, James. This is David. Yeah, so we had an open season late last year to look at opportunities on Nexus. And yeah, that's certainly one opportunity that we're actively pursuing, whether compression expansion is viable. There's a couple other techniques, I'll say it that way, that we're looking at on Nexus to enable incremental capacity at very modest incremental capital. And like I said earlier, low-risk investments that are on a relative basis much easier to do. But that's a priority for us. Nexus is a brand new asset, very well connected to the downstream markets. And with this price signal, a lot of these producers are looking for how can they grow their production. Appalachia is a world-class resource, long, long-term drillable resource. A lot of producers are sitting in a lot of undeveloped acreage areas. They have this wonderful price opportunity in front of them right now. They just need to have confidence they can take those volumes to durable long-term markets. So it's an absolute priority for us to create more freeway capacity out of the basin. And we're working both the Nexus side and, like I alluded to earlier, the Stonewall side. So the pathway north into the upper Midwest markets and the pathway south and east towards the East Coast or towards the Gulf Coast to get some of that Appalachian gas down into the LNG corridor. So we're in both ends looking for, you know, any optimizations that we can do with these assets to eke out more incremental capacity.
spk03: Any sense for the magnitude of how much capacity could be added via, I guess, compression or these other techniques? Either Nexus or Nexus plus Stonewall.
spk08: Yeah. Just given the point of the conversations right now on Nexus, I'm not in a position to share that publicly right now on Nexus. But I will remind, I'll share publicly the southern piece because I think we've talked about it in the past. Stonewall is a 36-inch pipe that has no compression on it. So there's open runway on Stonewall. and there's easy expansion opportunities on Stonewall, and we can take that comfortably up to two BCF a day, probably a little beyond under the right operating circumstances. So again, I think this is where we're looking at how do we do rational, low-risk, low-cost expansions to help these producers monetize some of their acreage. And obviously, For Stonewall, we have to work in conjunction with our other pipeline brethren in the industry to get beyond the southern end of Stonewall and further into the load centers.
spk03: Thank you. And if I could fit one more in, any sense on how much CapEx is associated with this most recent announcement for the expansion of AGS? Yes. And any thoughts on what the CapEx could be for any CCS projects down the road?
spk08: Yeah. So I'll say the AGS expansion is a very strong return expansion for us. And again, there's a lot of activity going on on AGS right now. And again, just bear with me here. We'll We will provide that information to you. I just can't do it just yet. There are other opportunities we're pursuing on AGS that I don't want that information out in the public domain at this point. So that's the AGS situation. And on CCS, again, I'm going to refer back to the Discipline Development Program. approach that we always like to take. And again, I think until we are prepared to file that EPA Class 6 application, again, we want to just keep some of the details out of the public domain as we navigate through the development cycle here. We're at a very sensitive point in the cycle. And again, as soon as we're comfortable sharing that with you, we will.
spk03: I understand. Thank you.
spk01: We have no further questions at this time. I'll turn it over to David Slater for any closing remarks.
spk08: Well, great. Thank you, everybody, for joining us today. And we truly appreciate your interest in DTM. And I personally look forward to seeing many of you at the EIC Investor Conference later this month in person and live. And lots of really exciting things happening in the sector and for our company right now. many of which we've touched on today, and very excited about the future opportunities in front of the company. With that, stay safe and have a great day.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
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