DT Midstream, Inc.

me to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Todd Lorman, Director of Investor Relations. Thank you. Please go ahead.

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-GAAP financial measures. Please refer to the Reconciliations 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 the latest commercial activity and construction progress on our growth initiatives. I'll then close with some commentary on gas 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. We are reaffirming our 2024 adjusted EBITDA guidance range. and our 2025 adjusted EBITDA early ELIC range. Our construction and commercial teams are making great strides in advancing our backlog of organic growth projects, positioning the company for continued success. This morning, we are pleased to announce that our LEED Phase III expansion was placed into service early and on budget, increasing the capacity from 1.7 to 1.9 BCF per day. and further expanding our Haynesville system's wellhead to water connectivity. As a reminder, this expansion was underpinned by long-term take-or-pay contracts and leverages incremental looping and compression, providing reliable, timely access to growing Gulf Coast LNG demand. We continue to be in active discussions for a LEAP Phase 4 expansion, with strong recognition by producers of the coming demand starting next year. and the long-term value for production access to Gulf Coast markets. Sticking with our Haynesville system, we've also executed agreements to connect three producers that are located in East Texas, further expanding and diversifying the supply access of our system. These agreements with private producers are underpinned by long-term contracts with sizable acreage dedications and include all of the delivery point flexibility of the system including potential access to LEAP. Turning to our energy transition platform, our carbon capture and sequestration project in Louisiana continues to progress as planned. The third-party evaluation of the Class 5 test well was recently completed, and the results confirm the formation's suitability for CO2 sequestration. We've commenced a more detailed engineering design of the system and injection site. and are awaiting the final class six well permit requirements from the Louisiana DENR. We are very happy with how the project is progressing and it remains on track for a second half of 2024 FID. This morning, we were also excited to announce that earlier this month, we reached an agreement to advance a new clean fuels gathering project. This project consists of the acquisition of an existing treating plant, and the build out of a new gas gathering system, which will gather fugitive coal mine methane from acreage dedicated by a producer. This new project is right in our wheelhouse and is expected to provide significant tax credit and environmental benefits, leveraging the producer's development and operational experience and our gathering, treating, and tax credit expertise. We are excited about our entry into this emerging and growing clean fuel space through the advancement of this opportunity from our project backlog, and we'll keep you updated as it progresses. Finally, I wanted to take a moment to address the natural gas market fundamentals. In spite of the choppiness in the short-term market, which is trading on weather, our portfolio has remained very durable, and we continue to be bullish on the need for natural gas infrastructure in the long term. We are nearing the next wave of new LNG demand growth, which will increase the call on natural gas production in 2025, and are pleased to see some fee gas deliveries to these new facilities already starting. We fully expect that growing LNG demand will underpin the gas market over the next decade, especially along the Gulf Coast corridor, which can be served directly via our Haynesville system. Beyond this new demand from LNG, we continue to be highly focused on advancing power demand related gas infrastructure opportunities across our footprint as new large industrial loads such as data centers emerge. With speed to market and reliability being foremost considerations for many of these facilities, natural gas fire power generation will be needed to provide stable and predictable base load energy. We anticipate this power demand growth will require incremental pipeline and natural gas storage infrastructure, creating growth opportunities for DTM, and we are currently engaged in early stage commercial discussions with six potential projects across our network. While not all of these opportunities may advance, we are excited about the prospect to serve this emerging demand growth. So, in summary, I am very pleased with how our team has performed in this challenged short-term commodity market as we continue to commercialize growth opportunities from our project backlog. 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 second quarter, we delivered overall adjusted EBITDA of $248 million, representing a $3 million increase from the prior quarter. Our pipeline segment results were $3 million below the first quarter, reflecting higher firm revenue from LEAP and our Washington 10 storage complex, offset by lower seasonal revenues from our pipeline joint ventures. Gathering segment results were $6 million greater than the first quarter, reflecting lower base business EBITDA due to the timing of producer plans and a planned maintenance outage at one of our Haynesville treating plants. offset by favorable one-time items of approximately 10 million, which were initially expected to be recorded in the fourth quarter. Operationally, total gathering volumes across both the Hainesville and Northeast averaged approximately 2.9 billion cubic feet a day in the second quarter, with volumes down in both regions compared to the prior quarter. In the Northeast, second quarter volumes reflected the impact of planned producer curtailments, partially offset by the continued ramp up in production on the Ohio-Uluca system. And in the Haynesville, second quarter volumes were lower due to the timing of producer activity and the impact of the treating plant planned maintenance outage. As we've previously noted, our 2024 plan and guidance assumes that gathering volumes and base business adjusted EBITDA would be lower in the second and third quarters, with a ramp expected in the fourth quarter, driven by incremental contributions from our new projects and a more constructive market environment for producers. We are confident in our full-year outlook and are reaffirming our 2024 adjusted EBITDA guidance range and our 2025 adjusted EBITDA early outlook. reflecting our strong start and confidence in the balance of the year. We've increased our committed capital in 2024 and 2025 to reflect new projects reaching FID with approximately 330 million committed in 2024 and approximately 180 million committed in 2025. This committed growth capital includes initial payments associated with our new Clean Fuels Gathering project, with the expectation that there will be additional spend forthcoming to build incremental project facilities in 2024 and 2025, as well as potential contingent payments due to the seller over the next several years subject to the achievement of project milestones. We will provide additional detail on the project in the coming quarters as the team finalizes scope and works to advance the project. Following our successful commercialization and commitment to new projects, we are updating our 2024 growth capital guidance range to $330 million to $375 million. The high end of our guidance range is unchanged, and we continue to expect to spend within free cash flow in 2024 and 2025. We are committed to preserving the strength of our balance sheet and achieving an investment grade credit rating. And we had very productive meetings with the rating agencies in May with recent positive actions from two of the agencies positioning us to potentially receive an upgrade to investment grade later this year. Finally, today we also announced the declaration of our second quarter dividend of 73.5 cents per share unchanged from the prior quarter. We remain committed to growing the dividend 5 to 7% per year in line with our long-term adjusted EBITDA growth. I'll now pass it back over to David for closing remarks.

Thanks, Jeff. So in summary, we are very pleased with our progress this year and are feeling confident in our full year guidance for 2024. and early ILLIC range for 2025. Our short cycle growth investments continue to track on budget and on schedule, which will contribute meaningful growth over the next two years. Our approach to capital allocation remains thoughtful and disciplined with our focus on spending within cash flow over the balance of a five-year plan and achieving an investment grade credit rating. As we look across the portfolio, we continue to see significant growth opportunities with our strategically located asset footprint building torque as new LNG and power demand increase the call on natural gas and through the emergence of our energy transition platform. We can now open up the line for questions.

As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Jeremy Tanay from JP Morgan. Please go ahead. Your line is open.

Hi, good morning.

Morning, Jeremy.

I want to dive in a little bit more, if I could, with regards to potential projects, I think six that you're talking about that could support logistics for data center opportunities, if I had that right there. If you could provide a bit more detail on what the scale and scope of these projects might look like as far as timing of online or size, or is this a FERC process to come online? Just wondering if you can share any incremental details on the potential scope there. I'm assuming that this is in Ohio.

Yeah, thanks for the question, Jeremy. You know, we're really excited about the number of opportunities that we're actually in a commercial dialogue on right now. And you're correct. They're all driven by this incremental power demand that is underpinned predominantly by data center development. But I think there's also just a growing demand for gas fire generation. So a lot of the conversation has been around the data centers recently. But I think there's just an underlying growth and strength in power demand, gas fire power demand in these regions. So, you know, I'd love to get into more detail, but we are under some confidentiality agreements with a lot of these conversations, so I'm going to have to just keep it at a high level. I would say that these are predominantly lateral type opportunities into these locations. There could be some incremental opportunity on the main lines that spawn from this. But you know, we view all of this as very supportive to the whole network in terms of just building new demand and connecting it to the current infrastructure and. But I think I'm going to stop there just in in terms of the disclosure right now. As I said in my opening remarks, Lots of conversations going on. Like always, not all of them will commercialize, but I feel really confident in our commercial teams batting average on commercialization. As they progress and as we can be more transparent, we'll certainly provide that color.

Got it. Makes sense. We eagerly await more details there. Pivoting to the new Clean Fuels Gathering project, I was just wondering if you might be able to share any more on what this looks like. Is this on or adjacent to your existing footprint? Is this in Pennsylvania, I imagine, for a fugitive coal mine, methane, or could this be out west? Just kind of curious, I guess, how you see the scale of this potential business over time.

Sure, Jeremy. Let's just start at the highest level. This is fugitive coal bed methane capture, and I think as we all know, methane is the most damaging greenhouse gas, so it has a very positive environmental benefit. So locationally, it's in and around what I'll call our existing footprint, and I'll just leave it there. And again, we just closed this transaction. This is a subsequent event conversation that we're having right now. for the quarter. So we'll provide more detail probably third quarter or year end as we scope out the complete development plan and can lay out more of the specifics and details for you. But I just say at the highest level, the demand for clean fuels in the country we believe is growing at a very rapid pace. Many states are developing clean fuel standards So this product we believe will be in high demand going forward. And this kind of lands right in our wheelhouse in terms of our core competencies. You know, we understand how to gather, we understand how to treat, and we have a lot of experience in tax monetization in the company. So we found a really good partner to work with that is complementary to our skill set. And we believe there's a future runway of growth opportunities in front of this. Step number one is to commercialize this. Step number two will be to look for incremental opportunities beyond this.

Got it. Very helpful. I'll leave it there. Thanks.

Our next question comes from Michael Bloom from Wells Fargo. Please go ahead. Your line is open.

Thanks. Good morning, everyone. I wanted to go back to your commentary on producer expectations in the Hainesville for the rest of the year. You're expecting a rebound by the fourth quarter. I'm wondering, though, if you're hearing any change yet in producer either messaging to you or just activity levels as we sort of are here now past, you know, midpoint of the year.

Sure, I'll address that Michael and good question. It feels as if we're having a bit of a double dip in the short term price here this summer and we were seeing quite a nice recovery there a month or so ago and we seem to be back down in the trough at the moment. Certainly very attuned to what EQT has said publicly on their call earlier. So I think we're taking a very cautious approach to Q3 and the balance of the year, just given how sensitive this market is right now around price, until we see that incremental demand really pick up later this year and next year. As I said in my opening remarks, we're seeing really good early signals of some fee gas showing up on these new facilities. But again, until those facilities are up and running and that demand is locked in, for lack of a better word, I think we're going to be in this choppy, short-term market that seems to be trading on the weather forecast as it changes day to day. So we need to get through the summer, get ourselves into the fall where we see a clear line of sight into the winter and see these incremental demands picking up on the system here in North America. That's sort of how we're guiding our results is we see that fourth quarter pickup and then getting into a much more constructive price environment in 2025 and beyond.

Great. I appreciate all that. And then I wanted to ask about a project that you, I believe you announced it last quarter, this project, this interconnect project into Mountain Valley Pipeline. I wonder if you have any updates there. Does that spurring any additional interest from other producers who maybe want to access Mountain Valley via your system?

Yeah, so I think once we announced that transaction, which was anchored, which had an anchor customer underpinning it, we've opened up the opportunity to other shippers on our Appalachia network there. And we're in an active dialogue with those shippers to the extent that they want to participate. If they do, Michael, that would result in an upsizing of the project. We're not at that point to announce it yet, but as you'd expect, we're actively working that with a group of our existing customers.

Great. Thank you so much.

You're welcome.

Our next question comes from John McKay from Goldman Sachs. Please go ahead. Your line is open.

Hey, good morning. Thank you for the time. I wanted to go back to, David, your comments around kind of volumes into the back half of the year and then into 25. You know, we have the EBITDA guidance range unchanged for the year. I guess just curious how much of that remaining range, I guess, is that gathering sensitivity Is there anything else in the portfolio that you're watching on? And then more broadly, can you just kind of remind us what your contracting position looks like in terms of kind of MVC support into the back half of the year as well? Thanks.

Yeah, great question, John. So I'll start by saying, you know, we're halfway through the year and we're in a really good position right now, halfway in in terms of achieving our guidance. And I'm just going to reflect back on the previous comments I made around price. I think we're taking a cautious approach. We see this price double dip phenomenon happening, and it's happening real time. So we're taking a cautious approach for the balance of the year. I think as you're aware, or as the investors are aware, we have significant MVCs that underpin our gathering segment, which really protects the downside. I think for us, the rest of the year is going to be all about that incremental molecule that likely is driven around the price structure that lays out for the balance of the year. We're highly confident in hitting our guidance. But in terms of that incremental molecule, which is the incremental revenue, it's really going to be, I think, price driven for the second half of the year. And again, we've taken a cautious approach. Just sitting tight with the guidance range as laid out.

All right, that's perfect. Thank you. Maybe and then taking that next step into 2025. As we see this demand finally start to step up, I guess how much of that incremental call do you think comes from the Hainesville versus. You know, supply from elsewhere, being able to make its way into the state.

Yeah, I think for us, the interconnectivity that we have with that incremental demand, we're connected, directly connected to the locations that that demand secures supply from, which is predominantly Gillis. So we feel real good about our system being built, being in service. That incremental demand is going to show up. We're going to have the ability to serve that incremental demand directly and timely. And I think that'll be our advantage, and we feel really confident about that in 2025. And I'd say some of the items that we've announced today would be proof points to that confidence. Those three new producers, private producers, that we're serving and going to do some work for to bring them online next year, I think are looking at the same fundamentals that I just described.

I appreciate that. Thank you.

Our next question comes from Keith Stanley from Wolf Research. Please go ahead. Your line is open.

Hi. Good morning. I want to follow up on that last question's line of thought. You know, you have some big competitors coming on and looking more likely to get built now with WEG and NG3. Are you seeing that reduced demand at all near term for incremental leaf expansions or Are you seeing the connectivity of the system still driving a lot of near-term demand, even with some competing projects likely moving forward?

Yeah, Keith, I think those projects moving forward, I think their in-service timing is, I think, earliest, late 25. So again, I think this next wave of demand washes through the market. will be there in front of their capacity being available. So I think that gives us an advantage. Again, I think what we announced today with those three new producers accessing the system have recognized that advantage. Obviously, we're working to commercialize our phase four LEAP expansion and feel highly confident that we're going to do that. again we're trying to take advantage of that uh situation that's playing out in the market right now and capturing another wave of expansion in front of those other two projects being constructed and completed and brought into service you know late 25 perhaps beyond depending on their schedules that's helpful uh second question i just

want to go back. So you point to over 1.3 billion of projects in the backlog through 2027. You're making progress on that. It seems like you have good visibility to hit your growth targets through that 2027 period. So given that, how are you viewing M&A these days as a way to maybe further boost growth? Is it on the back burner because of what you have organically in front of you? Or do you see acquisitions as a tool to maybe even enhance the growth rate over the next few years?

Yeah, Keith, the way I would describe it is our long-term growth guide of five to seven, so-called 6% growth rate at the midpoint. That organic backlog of projects fuels that growth rate. we do not require M&A to deliver that growth rate. And it's kind of look at our track record since we spun. We have been fueling that type of a growth rate consistently since we spun through organic opportunities. So we feel highly confident in our ability to hit that growth rate with purely organic activities. So you kind of alluded to it at the end of your question. M&A for us is really option value. And it has the potential to be an accelerant to that underlying growth rate. You know, and it would have to make, you know, clearly make economic sense if those opportunities present themselves. And that's kind of how we think about it at the highest level.

Thank you.

As a reminder, to ask a question, please press star followed by one. Our next question comes from Spiro Dunas from Citi. Please go ahead. Your line is open.

Thanks, operator. Good morning, team. Maybe to go back to that $1.3 billion backlog, just curious if you have any sense of directionally maybe where you think that goes from here. Is that kind of a nice steady state you hope to maintain? You know, obviously a lot of data around data centers and power demand more broadly, so curious if there's an acceleration and that backlog actually gets even higher over time, and what kind of projects you think start to fill it from here?

Yeah, Spiro, that's an interesting question. I think the fundamentals in the market right now, the way the market has evolved in the last six months with sort of this more robust power demand forecast in front of us that is driving, you know, everyone expects it's going to drive incremental gas infrastructure. You know, that certainly has an ability over time if that persists to create a more robust environment for, you know, midstream investments. So I tend to agree with that point that you're making that there could be potential tailwinds in the market here that are developing that could over time make that backlog more robust. I think it's early days. I mean, we talked about the opportunities that we're pursuing. We've been around long enough to know that you don't win all the opportunities, but that's a pretty We're a moderate-sized company, and we have a pretty robust opportunity set in that emerging space. I suspect all of the other midstream companies have similar opportunity sets that they're pursuing. So it does feel like there could be a more robust underpinning, fundamentally, that's entering in this space right now. So I think that's something to watch here over the next six to 12 months. Does this persist? Do companies like us and others start to commercialize some of these opportunities and lock them in? But it's certainly an area that we're spending a lot of time focusing on. And, again, really is complementary to our skill set and our existing asset base. So it's a very focused area for us right now, Sabiro.

Got it. Understood. Second question, going back to the new East Texas Gathering. You did mention the potential to come on to LEAP, and so maybe a simple question here. Curious, is there enough space on the line now to accommodate all those volumes, or does that sort of further support a Phase 4 expansion? And I guess I'm curious, what other options do your customers have? I guess they could price more locally, but maybe just walk us through the dynamics of why it would make sense for these volumes to eventually get to LEAP.

Yeah, that's a great question. So the way those current contracts are structured, they have – They have full access to all of our delivery point flexibility and the entire Hainesville system. Predominantly they're using, in your words, the local delivery points or in-basin delivery points, but they also have access to LEAP delivery points. That $400 million a day as this volume ramps would, if it ended up on primary LEAP delivery points, it would potentially underpin an expansion on LEED.

Perfect. I'll leave it there for today. Thank you, gentlemen.

Our next question comes from Sunil Subal from Seaport Global Security. Please go ahead. Your line is open.

Yeah. Hi. Good morning, everybody, and thanks for the clarity on the call. So I just wanted to dwell on the clean fuels opportunity a little bit better. So it seems like you get an initial payment in the second half. and then the project really kicks in in 2025. I was curious, you know, if you could quantify this a little bit, you know, going forward in 2025 or, you know, forward years, how should we think about this opportunity? Is this resulting in discussions with other clients also in the region which could help grow this set?

Yeah, let me touch on that. And again, we're describing a subsequent event activity here, so I'm probably going to be not able to provide as much clarity as you would like here. But I'll just step back and maybe reiterate some of my earlier comments, is that the demand for clean fuels in this country is growing rapidly right now. We're seeing more and more clean fuel standards being either implemented or discussed in different jurisdictions to be implemented in the future. So we're viewing this segment of the market as a very early days emerging segment from a demand perspective. And there's not a lot of supply. So we spent a lot of time looking at, okay, what are all the areas of opportunity on the supply side to bring this product to market? This particular opportunity fit very nicely within our wheelhouse in terms of geography, in terms of skill set, and our ability to execute well with a partner producer that is looking at this fugitive methane emissions as a very problematic inside their portfolio. So it checks a lot of boxes in terms of strategically doing a lot of good things for all the parties involved. So we'd like to commercialize this particular opportunity, which as we refine the scope, we'll be able to provide some answers to the questions that you were just asking me in more specifics. But I'm just going to ask you to pause on that, and that'll probably come in a quarter or so. But more broadly, we're looking at this as a nice entree into this segment. And there's lots of opportunities around the country to do similar work with other companies. And we're viewing that as a growth area. It's very early days. And I think as we advance this development, we'll be keeping everybody kind of tuned in. If I could point you to the project backlog, our organic project backlog, we have identified clean fuels as an area that we've been pursuing in that allocation of capital over that five-year plan. So we talk about 20% of the capital going into this energy transition space. Part of it's going to go into our carbon capture and storage project in Louisiana. We fully expect another portion of it to go into this clean fuel segment. Very excited. It's just really early days, and as we can put more definition around this for the investors, we fully intend to do that.

Okay. Thanks for fleshing that out. And then I just wanted to clarify one thing with regard to your discussions with rating agencies on credit moves. So once these moves happen, so that will basically put the whole capital structure on IG footing, i.e., the secured and the unsecured both, I presume?

Yes. So what we've got, you're right, we've got fall-away provisions in our capital structure. And so you're right, it takes like two of the rating agencies to get there for that to start triggering. But yes, that sort of is the natural path, and we've intentionally sort of set the capital structure to be able to do that cleanly. when that occurs. And again, that big part of that's going to be the Chesapeake Swim merger, because that's what Fitch has sort of tied theirs with that positive watch. And then S&P, or excuse me, Moody's has got theirs on the positive outlook, which is, again, based around that merger occurring.

Understood. And could you talk a little bit broadly about, you know, how does the IG move help DTM, you expect significant savings in terms of your financing costs. It's more like strategic goal.

Yeah, it covers sort of several areas. You're right. The obvious is around financing costs and those things, but you can see where our debt's trading pretty close to IG now, but still there's that. It also allows you related to we've got a little bit of money out there for some collateral. you're able to reclaim that. What it then also helps you with is on the equity side. It opens up your portfolio to investors that are focused on the investment grade sort of portfolio. It also opens us up to potential indexes that are also looking for investment grade. And then also then from a commercial standpoint, strategically, It provides sort of a halo around investment-grade entities. And so, again, as a part of the negotiating, commercial activity, and those kind of things, there's also a positive halo that you get by being in investment-grade. So it's across all of those fronts that we see that as a positive move, and that's why we've been pursuing that for the last several years.

Got it. Thank you very much.

Yeah, you bet.

Our next question comes from Robert Mosca from Mizuho Securities. Please go ahead. Your line is open.

Hi. Good morning, everyone. Thanks for squeezing me in. I only have one. Just wondering if we could get your latest thoughts on gas storage along the U.S. Gulf Coast, maybe as we get closer to some of these LNG projects coming online. Is that something that you've been looking at and maybe more broadly just the needs for gas storage related to some of these incremental power demand type opportunities and what you might be looking at on your footprint?

Sure thing. And good morning, Robert. Not a problem to squeeze in. So storage for us, it really hits. There's multiple opportunities that we view through the lens of our storage portfolio. So first off, here in Michigan, We've been really happy with the recontracting that we've done this year in that asset. So renewing and extending contracts at higher rates, longer terms, in a really strong storage market, which is what is in front of us today. I'd say the other thing, again, from the highest level is that we have been under investing in storage. When you look at the ratio of working capacity in the country, to the demand that we have in the country. We've been lagging behind in terms of making those investments. As more gas fire generation and renewables come on, on the electric side, I think that will start to exasperate that disparity and, in my view, drive the fundamental value of storage here in the back half of the decade. So that's sort of fundamentally what we're seeing with storage in the existing portfolio in terms of incremental growth opportunities. We're obviously looking closely at greenfield opportunities here in Michigan. I'd say that we're not quite at that price level for that to clear the market yet, but we're getting close. And then in the Gulf, many of our customers on the Haynesville system have been inquiring about storage and looking to kind of partner or co-develop storage opportunities. So there's a very clear need, perceived need for more storage to support the LNG expansion that's occurred down in the Gulf. So I think that's a very active file right now for a lot of companies and we're included in those companies. And again, it's finding the right location with the right geology at the right price. And you've got to have the trifecta. And we're working hard on that. And I know other companies are working hard on that, too. So stay tuned. More to come. I think there's a general consensus in the market. We need more storage. It's just a matter of commercially clearing the market and finding the right projects that can move forward.

Got it. That's helpful. Thanks for the time, everyone.

We have no further questions. I would like to turn the call back over to David Slater for closing remarks.

Well, thank you very much for joining us today and great questions. We certainly appreciate your interest in DT Midstream and enjoy the rest of your day. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.