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spk11: At this time, I would like to turn the conference over to Todd Lorman, Director of Investor Relations. Please go ahead.
spk03: Todd Lorman, Director of Investor Relations Good morning and welcome everyone. Before we get started, I would like to remind you to read the Safe Harbor Statement on page 2 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.
spk09: David Slater, President and CEO Thanks Todd, and good morning everybody, and thank you for joining. During today's call, I'll touch on our financial results, provide an update on the latest commercial activity, and construction progress on our growth projects. 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're off to a great start in 2024, giving us confidence in our full-year plan. We are reaffirming our 2024 adjusted EBITDA guidance range and our 2025 adjusted EBITDA early outlook range. Our construction and commercial teams continue to make great progress on our backlog of organic growth projects, setting the company up for continued success. This morning, we are excited to announce a new expansion on our Stonewall system, which includes additional mainline capacity, incremental compression, and a new interconnect with Mountain Valley Pipeline. This project will provide a new production outlet to the Mid-Atlantic market, which we expect will become a fast-growing region with new data center and AI-powered demand load emerging. The project is anchored by a 15-year agreement with a large investment-grade producer, which includes an acreage dedication and a minimum volume commitment. In conjunction with our new Stonewall development, we have also upsized our Appalachia gathering system Phase III expansion. The capital investment to support both these projects was already contemplated as highly probable as part of our capital guidance. And our capital plan for the year remains within our free cash flow after dividends. Staying in Appalachia, initial volumes began flowing on our Ohio Utica system in March. As a reminder, we expect production volume 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 a -or-pay contract structure. The liquids-rich Ohio Utica resource play is highly economic in today's price environment and further diversifies our gathering segment. We expect this emerging basin to continue to grow and are observing increased drilling activity from both our anchor customer as well as other producers in the region. Turning from Appalachia to the Haynesville, we are pleased to announce the completion of our new interconnect between our Haynesville system and the Gillis Access Project. This strategic interconnect will provide greater optionality to lead customers, directly connecting the system to approximately 6 BCF a day of expected new LNG export demand growth and further strengthening our competitive position. Our Blue Union Carthage area connection was also completed in mid-April, offering additional supply access, increasing our ability to further diversify customers on our Haynesville system. Our LEAP Phase III expansion remains ahead of schedule and on budget, and once completed, will bring the system's total capacity to 1.9 BCF a day. We remain in active discussions for LEAP Phase IV expansion and are well positioned in the grow and have proven our ability to serve our customers in a timely and efficient manner. While Haynesville producers have acted rationally to respond to short-term prices, there is strong recognition of the coming demand starting next year and the long-term need for production access to the Gulf Coast markets. Turning to our energy transition platform and our carbon capture and sequestration project in Louisiana. In the first quarter, we successfully drilled our Class V test well. Completing the Class V test well was an important milestone in the development process as we continue to de-risk the project with minimal capital spend. Early results indicate that the sequestration site meets or exceeds our initial view of the geology, and we remain on track for our second half of 2024 FID. Following the recent EPA announcement of new regulations mandating a 90% reduction or capture of CO2 emissions from new natural gas plants, we are poised to capitalize on this rapidly expanding market for carbon capture and sequestration. Our Louisiana carbon capture and sequestration project's methodical approach underscores our proficiency in development and execution and establishes us as a credible first mover capable of providing complete source to sink carbon capture solutions. Finally, I want to take a moment to address the natural gas market fundamentals and producer activity across our footprint. As we described on our year-end call, our guidance for 2024 was based on producers' plans that reflected the gas price environment at the time, which was impacted by warm winter weather. The activity that we are observing to this point remains in line with our plan for the year. In Haynesville, drilling has commenced on 90% of the wells that we've included in our 2024 plant. And in Appalachia, drilling has commenced on nearly 60% of the wells included in our 2024 plan.
spk08: Looking ahead,
spk09: gas prices in 2025 and 2026 remain in the $350 to $4 range, which we believe reflects the new energy demand and will support production growth on our assets as we close in on 2025, with potential for an earlier response if hot summer weather increases the call on natural gas for power demand. Like the rest of the sector, we're closely monitoring the developments around expanding demand to support data center and AI growth. While it's still early days, it's an exciting development as emerging power demand is expected to increase the call on natural gas fire generation, supporting the need for natural gas and natural gas infrastructure for decades to come. Additionally, many of our assets serve the regions that are expected to see this power demand growth fueled by data centers and AI deployment. I'll now pass it over to Jeff to walk you through our quarterly financials and outlook.
spk02: Thanks, David, and good morning, everyone. In the first quarter, we delivered overall adjusted EBITDA of $245 million, representing a $6 million increase from the prior quarter. Our pipeline segment results were in line with the fourth quarter, 2023, reflecting the higher firm revenue on leap offset by lower short-term revenue. Gathering segment results were $6 million greater than the fourth quarter, 2023, reflecting lower overall O&M and a ramp up in contribution from the Ohio Utica gathering system. Operationally, total gathering volumes across both the Hainesville and Northeast averaged approximately 3.1 billion cubic feet per day in the first quarter in line with the prior quarter. Our financial plan and 2024 guidance assumed that gathering volumes and adjusted EBITDA will be lower in the second and third quarters due to planned maintenance in the Hainesville as well as expected timing of producer activity. Volumes and EBITDA are expected to increase in the fourth quarter, driven by incremental contributions from our new projects and a more constructive market environment for producers. As David mentioned, we are confident in our full year outlook and reaffirming our 2024 adjusted EBITDA guidance range and our 2025 adjusted EBITDA early outlook, reflecting the strong positioning of our assets. We've increased our committed capital in 2024 and 2025 to reflect new organic projects reaching FID, with $265 to $295 million committed in 2024 and approximately $140 million committed in 2025. This increase is reflective of projects from our prior BRAC log that were already contemplated in our guidance, and we will continue to expect to spend within free cash flow in 2024 and 2025. If incremental growth investments do not reach FID in 2024 or 2025, we will evaluate the most accretive options for the excess cash flow, with our current view that it will likely be towards debt reduction. We are committed to preserving the strength of our balance sheet and achieving an investment grade credit rating, and are looking forward to our annual meetings with the rating agencies in early May. Finally, today we also announced the declaration of our first quarter dividend of 73.5 cents per share, unchanged from the prior quarter. We remain committed to growing the dividend 5 to 7 percent per year, in line with our long-term adjusted EBITDA growth. I'll now pass it back over to David for closing remarks.
spk09: Thanks, Jeff. So, in summary, we are very pleased with the start of the year and are feeling confident in our full year guidance for 2024 and early outlook range for 2025. 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.
spk12: We can now open up the line for questions.
spk11: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll go first to Jeremy Tonette at JP Morgan.
spk07: Hi, good morning.
spk09: Morning, Jeremy.
spk07: Just wanted to kind of start off with some of the commentary you laid out with regards to AI and data centers and how that could be beneficial potential for DTM and specifically as it relates to Nexus. Seems like there's a good amount of latent capacity there, so just wondering if you could talk about those types of opportunities.
spk09: Jeremy, thanks for that question. Yeah, I guess our high-level view is that the market right now is under forecasting power demand, especially in that Midwest, mid-Atlantic area. When you look at where a lot of the investments for data centers are happening, they're happening in those geographies, we've been seeing a lot of inbound inquiries, as you alluded to, on our network for incremental capacity that's emerging here in the next couple years. These centers are popping up everywhere, and it's a very short cycle turnaround in terms of when they announce a center and when that demand shows up on the grid, and in terms of incremental generation to supply that, it's base load demand, so it's going to fall upon natural gas fired generation predominantly to serve that incremental load. So we're very excited about it. I think it's going to also drive some incremental generation in these regions. A lot of that's been announced already in the mid-Atlantic region and southeast. I expect more of that's coming in the Midwest. So yeah, we're seeing the early signals of those demands and those companies that are looking to make those investments looking for incremental fuel supply to those locations. So we're optimistic. Again, I feel like the market is forecasted this demand, and as that becomes more visible across the segments, it's going to be very favorable. It's strong fundamentals around Nexus, around Vector. The announcement we made this morning on Stonewall for the interconnect with Mountain Valley, I think that's a derivative of what's happening in the southeast mid-Atlantic region, where people are seeing a call on natural gas a couple years out that's going to significantly expand. So we're bullish. It's early days, but we're definitely seeing those fundamental signals coming across the dashboard right now.
spk07: Got it. That's very helpful. Thank you for that. And maybe just pivoting over towards the WEEP system, just wondering if you could help us understand a bit better southern Louisiana logistics dynamics. And once the gas gets to Gillis, where does it go from there? Can it get to the LNG export facilities or are there future, I guess, expansions needed to connect there? Just wondering how you're seeing that come together and demand for LEAP expansions overall?
spk09: Yeah, I think the best illustration of that, Jeremy, is the Gillis Access Project. So that's in service and been flowing gas now for a couple months. That opens up an incremental 6 BCF a day of demand growth that LEAP will have the opportunity to serve. So that's some new infrastructure that's being put in place to directly serve the new LNG demand that's coming. But, you know, LEAP is very well interconnected at Gillis with numerous pathways into the expanding LNG terminals. So it's complicated down there. There's a lot of pipe, you know, the last mile pipe. But that's why the Gillis Access interconnect was so strategic for us is that it's one of those, you know, what I'll call last mile projects that is significantly expanding the ability to get incremental gas to these facilities.
spk07: Got it. That's helpful there. Just a quick last one, if I could. Haynesville activity very much in focus and it looks like Haynesville might be down 10% second quarter versus first quarter here. Just wondering if you could walk us through, I guess, you know, if that pattern holds, what type of impact that has on DTM?
spk09: Yeah, another good question. And I may have Jeff share an answer here. But I'll just start with the actions that our producers are taking are in line with our full year plan. And we expected that there would be some delays in completion activity in Haynesville. A lot of producers probably said that. And Jeff, maybe you can describe how we're thinking about that on a high level on our 24 plan.
spk02: Yeah, sure. And good morning, Jeremy. Yeah, so Jeremy, the way we positioned ourselves for 2024 is we took the latest information from our producers. And then we also built in a little bit of extra softness as a part of the 2024 guidance that we've provided. And then as part of my prepared remarks that we did today, we sort of described that the second and third quarter are going to be lower than what we're seeing here in the first quarter. And that towards the end of the year there in the fourth quarter is when we're expecting producer volume to start picking up in the fourth quarter, positioning themselves into 25. But the key point though is we're still very comfortable with our 2024 guidance range that we have provided.
spk08: Got it. Very helpful. I'll leave it there. Thank you. Thanks.
spk11: We'll move next to Olivia Halfordy at Goldman Sachs.
spk04: Hi, good morning. Thank you for taking my question. Maybe we could go back to LEAP for a minute. Phase 3 has been tracking ahead of schedule for the past couple of quarters. Can you walk us through how far ahead of schedule the project is tracking and maybe what you would need to see to potentially accelerate that timeline? And more generally on LEAP project timelines looking forward to the Phase 4 plus expansions, could you walk us through a rough timeline of when you would need to FID if targeting a 2025 or 2026 end service?
spk09: Sure can, Olivia. And thank you for the question. So I'll start with Phase 3 expansion. Yeah, the project is running. Modestly has schedule right now. And we're very happy with how the construction team has been executing. We're ahead of schedule and on budget. In terms of additional granularity on that, I'd say we'll stick with our current disclosures that we expect that to come in in Q3. But you can infer from what I'm saying where in Q3 that may come in at. In terms of Phase 4, what I'll say is the producers are behaving very rationally right now with this low commodity price environment. They're expecting the market to pivot here in Q3 and Q4. So we're seeing a lot of torque building right now in the Haynesville with our assets and how we're positioned. We've been able to execute expansions over the last 18 months. There's going to be incremental capacity required to serve the incremental demand that is under construction and on the eve of going into service here later this year. So we feel very confident in our positioning. Producers are being rational in this low price environment where they don't want to make an incremental commitment until they see the market pivot in turn. We are working closely with those customers and fully expect to participate when that market pivots in turns. They're financially in a position to make incremental commitments. So I'll just leave it at that.
spk04: Got it. Super helpful. Thank you. Maybe we can pivot to CCS. Do you have any details that you can share on the initial public read for the Class 5 test well results? And then I guess looking forward, we've seen a couple of recent updates from peers on the test well. What would you need to see on lower carbon opportunities more broadly for that to take more capital share versus the planned -20-20 split currently among pipeline gathering and energy transition spend?
spk09: Sure. Well, let's start with our current project and maybe I'll provide a little more color around how that test well played out. So part of drilling the test well is we did injection testing in the formation and those tests were very positive. We also logged the entire strata above and below the formation that we're planning to sequester into and all that came back very favorable and as expected. So we're very pleased with the results of that test well and it's this methodical approach that we're taking to this development, de-risking the capital that we have at risk, leveraging our expertise from natural gas storage development and pipeline development around this particular opportunity. And just to remind everybody, this is a source to sink development. So we're capturing the CO2 off our treatment plants, piping it to the sequestration site, doing the injection well and doing the permanent sequestration. We're doing all three components and as I alluded to in my opening remarks, we're observing the need for that carbon capture and sequestration solution, all three pieces. The market is expanding right now, especially with these new rules the EPA is proposing for gas fired power plants. But we're also seeing inbound interest from industrial clients as well that have large CO2 emissions. This approach is a very rational approach for them. So we're seeing that third party business emerging. It's early days but strategically our view is let's go through our own development, do it for ourselves, prove out our ability to do it in a very thoughtful, rational way and position ourselves for third party opportunities, especially around our geographic areas of focus. So that would be in Louisiana, that would be in the northern part of the country in the Midwest region. And again, these regions have great geology for CCUS and we believe will be a good counterparty to many of those customers that are looking for that service to provide it.
spk04: Great, I'll leave it there. Thank you again for the time.
spk12: Thanks a lot, Olivia.
spk11: We'll move next to Spiro Dunas at Citi.
spk10: Thanks, Operator. Let me see. Maybe just go back to lead phase four. David, understand your point on producers being rational here in this price environment but seriously, if you see any potential to upsize that expansion or at the very least underwrite towards the higher end of that 200 to 400 million cubic feet a day range, just given that some of your competitor pipelines might be delayed.
spk09: Yeah, what you just said, Spiro, is a reality that's playing out down there right now. There's a lot of demand for some of these new greenfield projects. So what we're doing is we're just staying very close to the market and these are real demands that are coming. They're under construction. It's unfortunate that in the backdrop we have this really weak price environment but it truly is building torque down there right now in the system. Just to remind the audience here, we're really the only project or one of the few projects that have been able to expand capacity into that market segment over the last 18 months. So we've got a great track record of getting stuff done, getting it done timely, in fact early in most cases. So that gives the market a lot of confidence when they're looking at who I want to ride on in terms of the next wave of expansion. So we're really trying to leverage that. I think everyone's looked at the numbers. Everyone sees the magnitude of the incremental demand that's coming. So there's a lot of opportunity here and we're confident that we're going to get our fair share. Can we upsize beyond the 2 to 400? My aspiration would be to do that but I think it's going to come just like the first 900 of expansion has come in nice bite-sized chunks. We have the ability to do that because we're incrementally expanding an existing system and we also have the ability to do that all the way upstream to the wellhead. Our system is an integrated system and again, we've been able to demonstrate. We've been able to do wellhead to treatment, treatment expansions, and then treatment to all the regional market centers the basin serves. So I feel optimistic but this price environment is definitely putting just a pause on people making their final decisions. So we're being patient. We're being patient and optimistic and we believe we have a great service and a good track record of execution.
spk10: Got it. Helpful call there David. Second question, maybe just going to the Stonewall interconnect with MVP. Sounds like the timing for that is 2026 and it looks like a good chunk of that is underwritten by MVCs. I know there is some concern around bottlenecks at the end of MVP and so just curious how you're thinking about actual volume flows in 2026. Do you see any bottlenecks going to be a phased in approach, just any color there?
spk09: Yeah, I mean we're really happy with what we announced this morning. We always view that if MVP gets built and it's on the doorstep of being completed that it's going to unlock incremental opportunity for that integrated system, the Stonewall and Appalachian gathering systems and that's exactly how it's played out. So I think from a MVP perspective, this interconnect will provide supply diversity to all those shippers. It'll open up incremental producers to compete for that market. So we believe across our whole network it's an incremental positive. As you alluded to, this environment, this arrangement that we have with the anchor is backed by significant firm commitments so that we are confident that we'll realize our returns on this project. In terms of how we expect that to be utilized when it comes to service in 2026, again, I think the demand in the mid-Atlantic region is really strong and robust and again my view likely under forecasted right now. So again, may there be some timing issues here in terms of how that capacity is ultimately utilized? I think time will tell but from a financial perspective, we're protected with those firm charges that we have embedded in the contract structure that even if it's a lower utilization on day one economically, it's not going to matter to us.
spk12: Got it. I'll leave it there for today. Thanks as always, guys. Thanks a lot, Cheryl.
spk11: We'll move next to Keith Stanley at Wolf Research.
spk06: Hi. Good morning. I wanted to follow up on the data centers and the inquiries you're getting for new capacity. Is that mainly to serve newly proposed gas-fired power plants that would serve data centers or do you see this going more as you have existing gas plants that need to increase pipeline capacity and so there's volume increases kind of across your existing gas pipelines?
spk09: Keith, we're seeing both phenomenon playing out which is kind of why I think generally speaking the market is under forecasting the power demand load. These data centers are baseload, right? They're 24-7 baseload power and they're huge load centers. I personally believe that's going to translate pretty directly back through to the gas-fired generation fleet. I mean the renewables are already factored into the demand curve and this incremental baseload demand will trigger a much higher utilization I believe in the gas-fired fleet in these micelles. So we're seeing it on both dimensions, the existing fleet and the to-be the next wave of incremental capacity being contemplated.
spk12: Got it. Thanks.
spk06: Second question, just wanted to touch base on the Louisiana pipeline crossing issue and the most recent court decision I guess kind of went in your favor. One of your peers has now argued that certain Hainesville takeaway pipelines should have been FERC regulated as long-haul pipelines. Do you see any implications at all for LEAP on this depending on how that goes at FERC or any other thoughts you have just on this topic and how it could play out?
spk09: Yeah, there's been tremendous drama, right, that has been playing out in the basin for the last 18 months. So I'll start with our particular ruling. We're very positive and it's favorable to us. It's what we expected. That being said, it doesn't impact. It we pursued that more out of our long-term view for the industry what's right and wrong in these servitude agreements and the interpretation of those servitude agreements. That's all I'll say about that. That process is still unfolding in the courts and will continue to play out. In terms of our perspective, we're not stepping into the drama that's playing out the basin because it's not impacting us. We're very supportive of the legislation that's rolling through the Louisiana at a state level that's looking to clarify some of this for the future. In terms of our Hainesville system, we have an integrated system. The best analogy I'll use is offshore activity in the Gulf of Mexico where you have an integrated system that reaches out to the wellheads, gathers from all the wellheads, treats, and then brings it on shore to the major market pipes. Our system is no different than that. It's integrated and as you all have seen over the last 18 months, there's almost a -for-one relationship between wellhead and expansions and lead expansions. Our systems have been operational for over five years and we've never had this issue emerge before. Again, I'm not going to step into the drama, but there's lots of volleys going back and forth over the net if I can use that analogy. I don't expect that will stop until the competitive process plays out and I'll just leave it there.
spk12: Very helpful. Thank you.
spk11: We'll go next to Robert Mosca at Mizzouho Securities.
spk01: Hi. Good morning, everyone. Just one from me. It seems like the Stonewall expansion timeline may have accelerated a little bit here. Wondering whether you think there's some potential for similar accelerations in the Northeast and also wondering how much of the expectation for increased domestic demand to the Mid-Atlantic is baked into your capex outlook right now?
spk09: Yeah, let me talk maybe at a high level about Appalachia and just this acceleration that you're referring to. I'd say when I look at Appalachia and look at our footprints, Ohio and Utica, were really bullish that play. As I alluded to in my opening remarks, we're seeing incremental activity showing up around that acreage. We're optimistic that we're going to see continued growth there, potentially an acceleration of growth there. I'll start with that. How this Mid-Atlantic marketplace out here over the next 12 to 18 months as this demand becomes clearer. I know Mountain Valley is looking at an expansion. The EQT-Equatran merger, I think, has to settle out and we'll get better clarity on the timing around those potential opportunities and if there'll be an incremental upstream impact on Stonewall. I think that will all play out, but I think the fundamentals are all constructive. That's, I guess, my view is that when I look at the fundamentals both on the supply side and on the demand side, they seem to be very constructive around our asset positioning and our asset footprint. It was alluded to earlier on the call that there's some hydraulic capacity that we're looking to unlock out of Nexus and again, that all plays into this outlook that we're seeing right now. We're seeing strong fundamentals in certain parts of the basin emerging and then this demand pull that's emerging in the load centers. We have a nice interconnected integrated asset footprint that we can use to take advantage of all of that and piece together solutions for both producer customers and for power generators on the other side. We're very optimistic right now that that's going to continue to play out over the next couple of years in the portfolio.
spk12: All right, appreciate the time. Thank you Rob.
spk11: We'll move next to Sunil Sibal at Seaport Global Securities.
spk05: Hi, good morning everybody and thanks for your comments and clarity on the call. First of all, on the investment grid credit ratings, I think previously you've talked about end of the year 2024 or early 2025 as the goal and I was just trying to see based on your comments going into discussions with rating agencies in the next few months, how should we think about that? Do you see kind of an acceleration of a timeline or the previous timeline is still kind of a good timeline
spk12: to think about? Good morning, Sunil. Yeah,
spk02: so I think your timeline at later 2024, 2025, that's our original plan. That's what we've been talking to you guys about for the last few years. So we're set up to have our annual meeting is going to be the first week of May. It's like next week we're meeting with all three of the rating agencies. So again, we're anticipating those are going to be very positive discussions and so we'll get more clarity from them on like what is that final piece. Now related to acceleration of maybe pulling forward either positive outlook or even up to being upgraded investment grade, it's the Chesapeake swim transaction like we've talked about. We think that's probably the biggest thing that could accelerate when that deal gets done here in the second half of this year. So that's kind of what our plan is. Our plan gets us there according to timeline and then the merger is what would we see that as an accelerant towards the plan.
spk05: Understood and thanks for that. And then one clarity on your latest project in the northeast. So seems like, you know, do you see this as a kind of an incremental man but say with regard to the takeaway capacity or is it just the fact that, you know, producers kind of are lining up to fill up the MVP. So I'm just kind of curious, you know, how is your discussions, how do you see MVP, you know, volumes progressing as it comes online
spk12: in the next month or so? Yeah,
spk09: I'll take that one, Sunil. I'd say for our project, which just to remind everybody comes online in 2026, I'd say the initial thinking there is more diversity of supply for the existing Mountain Valley contracts in the early days when it comes online but I think a longer view would also, that would be another pathway if there is a Mountain Valley expansion and I think the owners of Mountain Valley are talking about an expansion, that this is another pathway to serve that incremental demand and again provide some diversity of supply into that asset longer term. So I actually think it's both, you know, one in the short term and the other one in the longer term.
spk12: Hopefully that answered your question. Thanks.
spk11: And that does conclude our Q&A session. I will now turn the conference back over to David Slater for closing remarks.
spk09: Well, thank you very much for joining us today and we certainly appreciate your interest in DT Midstream and look forward to seeing many of you at the EIC conference coming up in a few weeks. Have a great day.
spk11: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
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