DT Midstream, Inc.

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-GAAP financial measures. Please refer to the reconciliation to GAAP 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.

Thanks, Todd, and good morning, everyone, and thank you for joining. During today's call, I'll touch on our financial results, provide an update on construction of our growth projects and latest commercial activity. I'll then close with some commentary on the current market fundamentals before turning it over to Jeff to review our financial performance and outlook. So with that, we had another strong quarter, and the business continues to perform in line with our full-year plan, giving us confidence in our full-year adjusted EBITDA guidance for 2023 and early outlook for 2024. We are reaffirming our 2023 adjusted EBITDA guidance midpoint of $915 million and narrowing the range to $905 million to $925 million, reflecting the solid business performance to date. Our construction team continues to make great progress on our growth projects, and I wanted to commend them for all their hard work this year as they overcame many supply chain and weather challenges. In late August, we placed our LEAP Phase 1 expansion in service, which was well ahead of schedule and on budget. The expansion capacity immediately filled up and has been running flat out since the in-service date. The team has quickly turned its attention to our Phase 2 expansion, which remains on track for Q1 2024 in service and will be followed by our Phase 3 expansion in Q3 2024. We remain in active discussions for a LEAP Phase 4 expansion, and the recent successful completion of our Phase 1 expansion demonstrates our ability to serve our customers in a timely and efficient manner, an important consideration for producers seeking to reach the attractive Gulf Coast LNG markets, as well as those customers seeking feed gas supply certainty. As you know, LEAP is strategically located to serve growing demand on the Gulf Coast, and we are excited to announce that we are building a new one BCF a day interconnect with the Gillis Access Project. This will provide further direct access to the Louisiana Industrial and LNG corridor. Following the expected Q1 2024 in-service of our new Gillis Access interconnect, LEAP will be directly connected to approximately 6 BCF a day of expected new LNG export demand growth, further strengthening our competitive position. Upstream of LEAP on Blue Union, we are building a new 400 million cubic feet per day supply interconnect with a third-party processing plant in the Carthage area. add incremental supply to our network and continue to diversify our customer base. Last quarter, we announced a final investment decision on a new greenfield gathering opportunity in the Ohio Utica. Construction is progressing on budget and ahead of schedule, with the project now expected to go in service in early Q1 2024. As a reminder, we expect volumes to ramp over an 18 to 24 month period as our customer executes on its development plan and delineates this emerging play. And our revenues are fully protected under our take-for-pay contract structure. This is another great example of the excellent work from our construction team and their ability to execute on short-cycle investments. On Nexus, we recently added 50 million cubic feet a day of new capacity through an amendment to our Texas Eastern lease, which feeds the Nexus mainline. Nexus volumes have been running near all-time highs, and we continue to see a strong demand pull for pipeline takeaway capacity from Appalachia. Our expansion of the Appalachia Gathering System is expected to be in service by the end of the year, which also directly feeds Nexus. So there is definitely a lot of positive momentum building for this asset, as it offers critical egress capacity to strong, growing, and durable markets in the Midwest and eastern Canada. Turning to our energy transition platform and our CCS project in Louisiana, we are currently working through our Class V well permit with the Louisiana DNR, which will allow us to drill a characterization well. Assuming the test well results confirm our favorable view on the geology, we would seek to reach final investment decision in the first half of 2024. Finally, I wanted to take a moment to address the natural gas market fundamentals and producer activity across our assets. There has been a lot of focus on the short-term price of natural gas this year, which has certainly impacted producer activity in a portion of our asset portfolio. The resulting impact, however, is one of timing, a deferral of drilling and completion activity, a when, not if, decision by producers, waiting on the right price signal. Storage surplus, which has fueled weak cash prices, experienced a steady decline this summer driven by strong power generation demand and has resulted in a more balanced market in the short term. Long-term forward pricing in the $3.50 to $4.00 range in 2024 and 2025 is supportive of U.S. domestic production activity and growth. Domestic natural gas demand continues to grow and demonstrate its durability and importance to our economy, especially in the power generation sector, and we are seeing this firsthand across our pipeline portfolio. Stable and reliable U.S. source LNG is also in high demand across the world as the U.S. continues to grow its export capabilities primarily on the Gulf Coast. These long-term fundamentals are very supportive of our assets and the future growth prospects for the company. This is reflected in our deep backlog of organic growth investment opportunities, enabling us to deliver distinctive growth for many years to come. I'll now pass it over to Jeff to walk you through our quarterly financials and outlook.

Thanks, David, and good morning, everyone. In the third quarter, we delivered overall adjusted EBITDA of $236 million, representing a $12 million increase from the prior quarter. Our pipeline segment results were up $6 million from the second quarter, reflecting the impact of the early in-service of our LEAP Phase 1 expansion. Gathering segment results were $6 million greater than the second quarter, reflecting higher revenues on Blue Union and lower overall O&M. Operationally, total gathering volumes across the Haynesville and Northeast averaged approximately 3 billion cubic feet a day in the third quarter, up close to 100 million cubic feet a day from the prior quarter. In the Haynesville, volumes were up compared to the prior quarter, driven by the return to full operational capacity following the maintenance outages observed in the second quarter. In the Northeast, volumes were in line with the second quarter. As David previously mentioned, we are reaffirming our 2023 adjusted EBITDA guidance midpoint of $915 million and narrowing the range to $905 to $925 million, reflecting the strong year-to-date business performance. We are also raising our distributable cash flow guidance range to $650 to $675 million, a midpoint increase of approximately $13 million due to favorable distributions from our pipeline joint ventures. Our committed capital over 2023 and 2024 of approximately $800 million remains unchanged, with approximately $100 million committed in 2024, providing the opportunity for excess free cash flow allocation next year. If growth investments do not reach FID for 2024, we will evaluate the most accretive options for excess cash flow with our current view that it will likely be deployed towards debt reduction. We are committed to preserving the strength of our balance sheet and achieving an investment grade credit rating. We expect to end 2024 with an on-balance sheet leverage ratio of 3.6 times or below and four times or below, including our proportional share of debt at our joint ventures. Over the course of the five-year plan, we expect to delever to the low threes with our on-balance sheet debt and to the mid threes assuming proportional consolidation. Finally, Today we also announced the declaration of our fourth quarter dividend of 69 cents per share, and we are committed to growing the dividend in line with cash flow. I'll now pass it back over to David for closing remarks.

Thanks, Jeff. So in summary, we're feeling confident in our full year guidance for 2023 and early outlook range for 2024. Our short-cycle growth investments continue to track on budget and on schedule, with some projects running ahead of schedule, resulting in meaningful growth contributions in 2024 and 2025. Our approach to capital allocation remains thoughtful and disciplined, with our focus on spending within cash flow over the balance of our five-year plan and achieving an investment-grade credit rating. As we look across the portfolio, we continue to see significant growth opportunity with our integrated and strategically located asset footprint building torque and our capital investment program laying a strong foundation to build upon. We can now open up the line for questions.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. Again, that's star 1 to ask a question. The first question is from Jeremy Tonette with JP Morgan. Your line is open.

Hey, good morning, guys. This is Broughton Reddy. I'm for Jeremy. For my first one, I just wanted to ask on the project backlog, are you guys able to provide any color on the incremental interconnects announced this quarter and maybe just kind of what that means for CapEx going forward?

Good morning. This is David. That CapEx related to those interconnects was contemplated in our current committed capital guidance. So there's no incremental capital associated with that in our capital guidance.

Got it. And for the next one, I guess I just want to get your thoughts on DTM's competitive positioning within the Haynesville and ability to grab new volumes. If you could just speak broadly to your thoughts there, that'd be great.

Sure. So both of those items that we just talked about further enhances our competitive position. I think as I look at what's coming in the next two to three years, clarity on project execution and timing is critical for new customers. Obviously a competitive rate is important and price transparency is also important. So as I think about LEAP's competitive position, We score very well on all those criteria. And as this new Gillis Access project is built and in service, you know, Venture Global is the primary underwriter of that expansion. And as we all know, they're growing their LNG export capacity significantly in the next couple years. So LEAP is now very well connected and will be even better connected to all the LNG export facilities by the time that project completes. So we're in a very strong competitive position. Just like the earlier round of expansions, we did very well. I fully expect in the next round of expansion, we're in a really good spot to deliver high-quality service for any shipper looking to egress the Hainesville and serve these markets, as well as providing supply security and certainty to these new export facilities that need to reach back and procure supply out of the Hainesville.

Great. Thanks for all the color. The next question is from Michael Bloom with Wells Fargo. Your line is open.

Thanks. Good morning, everyone. So I realize you're not providing 24 CapEx guidance yet, but just want to make sure I'm understanding correctly what you said so far. So you have about 100 million committed and so far in 24, and you're saying that you'll get to 3.6 times the leverage or better by the end of 24. But does that, that assumes that those other, like that number doesn't change for 24 in terms of CapEx or you'll get there regardless?

Yeah, great question. So as we sit here today, you know, the committed capital is what we've said for 2024. And, you know, the simple math is, you know, 400, 450 million in free cash flow after dividend. So there's a significant amount of uncommitted capital for 2024. We're obviously working on projects as we speak. We expect we will be successful on some of those projects. So we'll provide a clearer update on the year-end call as to how much of that will be committed in 2024. But as I sit here today, best view of 2024 is I expect there'll be some excess free cash flow, as Jeff alluded to in his comments. And again, as we sit here today, that likely goes to debt reduction for 2024.

Okay, got it.

And then I'm sure you're well aware of recent press articles talking about Millennium Pipeline, the piece you don't own being in the mix for sale. So hate to beat a dead horse, but since it's back in the news, figured I'd ask you to just comment again how you're thinking about that since it seems like maybe it's back in play.

Yeah, thanks for that question. Yeah, I don't really have any comment on that. I mean, we've talked about this for many quarters and most of the year. From our perspective, nothing has changed. I think our partner has a very full plate of activities that are in front of them and wish them the best with that. But our view hasn't changed. We're very happy with the asset. We're very happy that we're the majority owner of the asset. The asset has performed exceptionally well this year, you know, beyond pro forma when we acquired GRID's interest a year ago. And, again, I'm not going to add to any comments that I've made previously on this topic, and I think this is probably a question really for TC.

Got it. Understood. Thank you.

The next question is from John McKay with Goldman Sachs. Your line is open.

Hey, good morning, everyone. Thanks for the time. Wanted to just pick up on maybe two things for the EBITDA guide for 23 and 24. Third quarter was kind of better than we expected, but we had, you know, you guys kind of narrowed the range but didn't guide us higher on 23. Are there any kind of offsets for fourth quarter that we should think about versus your current run rate? And then for 24, you guys have kind of added a few projects, pulled forward a few projects. But that number is also unchanged. I'm wondering if you can just kind of bridge the gap on both of those. Thanks.

Sure. Good morning, John. Great questions. So I'll talk 23. And yeah, we had a really strong quarter here in Q3, which will set us up with high confidence for delivering the year this year. And we narrowed the band, just kind of reflecting what I'll call the water under the bridge so far this year. As you know, we like to deliver strong years, so I'll just leave it at that. In terms of looking at Q4, and I'm inferring from the way you asked the question, how does the gathering side of the business look in Q4, I'll refer you back to my comments, my fundamental comments in my opening remarks. We've all heard from a lot of the public producers that there's been a deferral and a delay of some of the completion activity as a derivative of the low prices that they experienced this summer and earlier in the fall. So that's going to play through. It'll play through. But again, this is a very short-term phenomenon. It doesn't change their long-term plan and how they expect to use the system long-term. So it's a timing issue. So I'll leave it at that for comments on the balance of this year. In terms of next year, it's our practice to refresh and update the prompt year on the year end call. And we'll digest all the puts and takes across the portfolio and play that through for 24 and for 25. And it has been our practice to always give an early outlook prompt plus a year. So I think we'll just leave our comments until the year-end call. And the reason why we do that, John, just for everyone's benefit, is so that we have high confidence in the guidance that we provide to you, is that we wait. As you would expect, we get a lot of information from all of our customers. That information becomes much better, crisper, and more reliable. As you get to the end of the year and in the January time frame when they're locking down their plans So that gives us high confidence in the guidance that we provide for The prompt year and gives us a lot of confidence in the prompt plus year as well. So You know a lot of the focus that we'll have on 24 is going to be on the gathering side of our business the pipeline side and As we've talked about all year, it's been performing just outstanding performance on the pipeline side of our business. And as you know, that's the largest portion of our business. That's about two-thirds of our business. So we've seen some really strong fundamentals playing out, both in the south around our LEAP asset as well, across all of our pipeline assets in the north. And that gives us tremendous confidence for the year and for years ahead.

That's great. I appreciate all that detail there. Maybe just looking in quickly at the interconnects following up on the earlier question, I guess just curious from our side, are you expecting this to bring on kind of material incremental volumes onto LEAP above what you were expecting? Or is this kind of more about adding flexibility for your existing shippers and kind of existing flows?

I think it's all of the above, John. I mean, the interconnect with the Gillis Access Project I think is very strategic long term and puts us in a really strong competitive position to serve that growing demand. Adding supply to the Blue Union system just puts more product on the system, more customers on the system, diversifies our customer base, and all of that strengthens the competitive position of the entire Hainesville asset footprint and gives us tremendous flexibility to offer lots of different services to the different customers. So it's, you know, I expect it's going to be positive in the short term, but it's also going to be very positive in the long term in terms of making this network a very attractive network when people have choices as to how they want to move their gas, process and treat their gas, and ultimately deliver their gas to the different market hub delivery points out of the basin.

All right. That's great. Appreciate the time today. The next question is from Spiro Dunas with Citi.

Your line is open.

Thanks, operator. Morning, David. Morning, Jeff. I wanted to go back quickly to the Hey, guys. Just go back quickly to the Hainesville gathering volumes. You've addressed a little bit of this. We want to put a finer point on it. Saw them kind of bounce back in 3Q versus the maintenance in 2Q. So curious as we go forward here, thinking about that cadence from here as these LEAP phases come online, is that going to draw incremental gathering volumes in or are you sort of moving them off other systems onto LEAP?

Yeah, great question. It's going to do both. It's going to draw in incremental volumes onto the network, and it's going to have volumes that are currently being delivered to other third-party pipes likely stay on the network in the future. So it actually does bulk spiral.

Okay, and I think you had mentioned that phase one kind of came on and filled quickly. Based on what you just said, it sounds like these next phases, you're expecting something similar there as well?

We're highly optimistic, so the answer is yes. Okay, got it. How quickly that first phase filled, I think it even surprised us a little bit how strong the demand pull was. And if you look at the pricing, in the market, you'll see that price signal being broadcast in the market. The pricing signal is saying we need more gas at Gillis. So, fundamentally, that's very encouraging for phase two and phase three.

Great. And then just a second question. David, you talked about the right price signal for producers. I'm sure there's no magic number, but you also talked about this range looking forward and kind of the 350 to 425 range is supportive. I guess, is that kind of the price signal range that we should be thinking about? And if that's already prevalent, I guess, what are we waiting for to see producers start to mobilize here?

Yeah, I think that is the price band that is going to trigger what I'll say producers kind of getting back on the gas pedal, so to speak. You know, all of that is premised on a balanced market fundamentally supporting that price. But I'd say just like there is a delay on producer reaction to that low $2 price that showed up in February timeframe, I expect there will also be a delay on the uptick in the pickup. I think producers are going to want to see the durability of the current pricing and This is just my opinion and I'm sure I would ask this question to the public producers as well But I suspect they're going to want to see a couple months of that price sticking in the market before they Sort of pour more capital into the drill bit, but that's just my opinion I think there'll be a bit of a lag before we see that ramp up and the pickup of activity and And like I said in my opening comments, I think this is a very short-term phenomenon. It's not an if question, it's a when question. And, you know, whether that pickup happens in November or in January, you know, it doesn't have a material impact on our long-term view and our long-term outlook.

Helpful callers always. Thanks for the time, guys. You're welcome.

Again, that's star one to ask a question. The next question is from Keith Stanley with Wolf Research. Your line is open.

Hi. Good morning. Just some questions on the CCS project. If you were to FID the project, would the bulk of the capital spending be in 2024 or more likely in 2025 on the current plan? And then can you remind us on how this ties to eventually paying more in cash taxes, when you would expect to start paying more in cash taxes, and how that aligns with the startup of the CCS project?

Sure, Keith. Good question. So assuming we FID CCS in 2024, you're correct. The capital will be spread out over likely a multi-year time frame, like 24, 25 time frame. So it will not all hit in one year, which again is, I think, why we're telegraphing our early view that we likely will have uncommitted free cash flow in 2024. Again, based on the information that we have today. Jeff, do you want to address the other part of that question?

Yeah, sure. What our thought is around the cash taxes will start increasing probably around the back part of the five-year plan. We're talking 26, 27, and then depending on final rulings around how the 45Q is going to get played out as the direct pay or various other things, that'll sort of factor into our cash taxes also. But again, our The increase in cash taxes is not going to be material for us.

So that's our current view around that. Thank you. We have no further questions at this time.

I'll turn it over to David Slater for any closing remarks.

Well, thank you very much for your interest in DTM, and we appreciate all the support, and have a great day.

This concludes today's conference call. Thank you for participating.