EnLink Midstream, LLC

and Chief Financial Officer. Walter Pinto, Executive Vice President and Chief Operating Officer, is also in the room to answer any questions during the Q&A session. We issued our earnings release and presentation after the markets closed yesterday, and those materials are on our website. A replay of today's call will also be made available on our website at investors.nlink.com. Today's discussion will include forward-looking statements, including expectations and predictions within the meaning of the federal securities laws. The forward-looking statements speak only as of the date of this call and we undertake no obligation to update or revise. Actual results may differ materially from our projections and a discussion of factors that could cause actual results to differ can be found in our press release, presentation, and SEC files. This call also includes discussions pertaining to certain non-GAAP financial measures. Definitions of these measures, as well as reconciliation and comparable gap measures, are available in our press release and the appendix of our presentation. We encourage you to review the cautionary statements and other disclosures made in our press release and our SEC filings, including those under the heading Risk Factors. We'll start today's call with a set of brief prepared remarks by Jesse and Ben, and then leave the remainder of the call open for questions and answers. With that, I would now like to turn the call over to Jesse Arenivas.

Thank you, Brian, and good morning, everyone. Thank you for joining us today to discuss our first quarter 2023 results. The momentum we entered the year with continues as customers remain active across each of our segments. Our team continues to find additional ways to leverage our existing assets in the ground, driving attractive returns. Later on the call, Ben will provide more color on our results, but we generated approximately $324 million of adjusted EBITDA in the first quarter of 2023, which includes an adverse impact of approximately $6 million due to the lingering impact of winter weather and an earthquake we experienced at the end of 2022. Despite this impact, NLINK is on pace to achieve the midpoint of our adjusted EBITDA guidance range of $1.305 billion to $1.405 billion. Today, we operate three large-scale GNP systems led by our largest segment, the Permian. Over the past three years, we've averaged 40 rigs across our system, and today, we stand about 30% above our historical average. This solid level of activity drives our growth today and sets us up well for the future. In the most recent quarter, we've seen gathered volumes in the Permian more than double over the past three years to nearly 1.7 million MMBTUs per day. We remain laser focused on continuing to reinvest in attractive projects and meeting producer needs. Late last year, we brought online the Phantom plant, which added over 235 million cubic feet a day of capacity to our Midland system. We also recently announced our third plant relocation and our first to the Delaware Basin, where we will add approximately 150 million cubic feet a day of processing capacity in the second quarter of 2024. This growth in our GNP platform helps drive our Louisiana business, where we service industrial end users with both gas and NGLs. This supply growth helped drive our decision, along with our partners, to restart Gulf Coast fractionators earlier than was originally planned. As we look to 24 and beyond, we're very excited about our growth prospects in Louisiana, both for our traditional gas and NGL business and for our CO2 business. Last week, the state of Louisiana received some promising news on the policy front. As the EPA decided that, subject to public comment period, it plans to grant the state's application for primacy over Class VI wells, which are used to inject CO2 deep underground for permanent storage. We believe granting Louisiana primacy is an important milestone for accelerating commercial CCS deployment in the state. As we discussed at our recent Investor Day, Enlink's Carbon Solutions Group is executed on our first mover advantage and is building out its scalable CCS business. Emitters are now selecting sequestration providers, and the decision over privacy will serve as a real catalyst to Louisiana becoming a global leader in low-carbon manufacturing. We're pleased to see Louisiana continuing to leverage its unique business advantages, support for innovation and climate action to spur new business development. Last year, the state received nearly 21 billion in new business developments and investments. These investments include meaningful build out of our nation's LNG export capacity. There is eight BCF operational, BCF a day operational capacity in Louisiana today. An additional 11 BCF a day of capacity is either under construction or approved and awaiting FID in the state of Louisiana. Other industries are making large investments in the state of Louisiana. For example, CF Industries in Mitsui are evaluating a site in the Ascension Parish for the construction of a new $2 billion blue ammonia production facility. Investments like these serve to expand the CO2 market beyond the current 80 million metric tons along the Mississippi River corridor. They also increase the demand for natural gas and transportation services. In summary, despite the recent volatility in commodity prices, we are very excited about 2023 and beyond. We remain focused on creating sustainable value through investing in high return projects to meet the needs of our customers and our growing downstream business. With that, I'll turn it over to Ben to provide an overview of our operations and our financial results.

Thanks, Jesse, and good morning, everyone. Let's start with our largest segment, the Permian, where segment profit for the first quarter of 2023 came in at $96 million. Segment profit in the quarter included approximately $0.4 million of operating expenses tied to plant relocations. and $6.3 million in unrealized derivative gains. Excluding plant relocation OPEX and unrealized derivative activity, segment profit in the first quarter of 2023 decreased 10% sequentially, but grew over 3% from the prior year quarter. As we indicated in our February call, The first quarter results were adversely impacted by lower volumes due to the lingering impact of winter weather and an earthquake that we experienced at the end of 2022. These impacts amounted to about $4 million in the Permian in the first quarter of 2023. Despite those impacts, it was a record quarter for gathered volumes, with average natural gas gathering volumes approximately 6% higher compared to the fourth quarter of 2022 and 25% higher from the prior year quarter. Our March volumes averaged about 1.8 million MMBTUs a day, an exit rate that reflects strong growth absent the impacts of weather and the earthquake. Turning now to Louisiana, we experienced another quarter of solid performance in the gas segment, and we saw seasonal strength in the NGL segment in the first quarter. Segment profit for the first quarter of 2023 came in at $96.4 million. Segment profit included unrealized derivative losses of $9 million. Excluding the impact of unrealized derivative activity, segment profit in the first quarter of 2023 increased approximately 5% sequentially and 10% from the prior year quarter. Moving up to Oklahoma, we delivered segment profit of $94.7 million for the first quarter of 2023. Segment profit in the quarter included unrealized derivative losses of approximately $1.4 million. Excluding plant relocation OPEX and unrealized derivative activity, segment profit in the first quarter of 2023 decreased 7% sequentially, but grew approximately 1% from the prior year quarter. The first quarter results were adversely impacted by approximately $2 million due to the lingering impact of winter weather experienced in the fourth quarter of 2022. Despite the weather impact, average natural gas gathering volumes increased 10% sequentially and 18% compared to the prior year order. We have been pleased with the resilience our Oklahoma business has shown, despite headwinds from lower commodity prices, as we continue to see robust drilling activity levels. We have not seen a meaningful change in our volume outlook for 2023, and we expect to see double-digit growth in gathered volumes compared to 2022. Wrapping up with North Texas, segment profit for the quarter was $76.1 million, including unrealized derivative gains of $2.7 million. Excluding unrealized derivative activity, segment profit in the first quarter of 2023 decreased 3% sequentially, but grew 23% from the prior year quarter. The improvement over the prior year was driven in part by the acquisition that closed in the third quarter of 2022. Natural gas gathering volumes were 5% lower sequentially, but were 19% higher compared to the prior year quarter. We continue to make solid progress to reduce our CO2 emissions intensity. The previously announced project with our largest customer in North Texas, BKV, to capture and permanently store CO2 from our Bridgeport facility is progressing ahead of schedule, and we now expect an in-service date in early fourth quarter 2023. These solid results were in line with our expectations and drove another robust quarter with $324 million in adjusted EBITDA. These results represent 6% growth in adjusted EBITDA over the prior year. We are reiterating our adjusted EBITDA guidance for 2023, and we are currently tracking toward the midpoint of the range. Our midpoint incorporated the potential for a slowdown in activity in Oklahoma and North Texas in the second half of 2023. and our view of the strength of the business has not changed since we provided guidance in February. Capital expenditures net to NLINC, plant relocation expenses, and investment contributions were $157 million in the first quarter of 2023. This included a $43.5 million contribution to our Matterhorn joint venture and a $6.2 million contribution to Gulf Coast Fractionators. The timing of these investment contributions resulted in higher overall CapEx during the quarter, but this timing was as expected, and we still generated free cash flow after distributions of approximately $6 million. On the balance sheet side, we continue to be in a strong position with a leverage ratio of 3.4 times at the end of the first quarter and ample liquidity. We remain investment-grade at Fitch, and one notch below investment grade at S&P and Moody's, with a positive outlook at S&P. In early April, we closed a $300 million tack-on offering to our 2030 notes to take advantage of favorable interest rates, reduce our floating rate exposure, and maximize our available liquidity. Consistent with our capital allocation plan to return capital to investors, we maintained our common unit distribution of 12.5 cents per unit in the first quarter, which represents an 11% increase over the first quarter of 2022. Additionally, we remain active with our common unit repurchase program with approximately $50 million spent in the first quarter. This puts us on pace to complete our $200 million unit repurchase program for 2023. In summary, the NLINC team delivered solid results in the first quarter of 2023, and we expect the momentum to continue for the rest of the year. Despite the recent volatility, our assets are well positioned to grow, led by our largest segment today, the Permian. With that, I'll turn it back to Jesse.

Thank you, Ben. I'm proud of the NLINC team for their solid execution in the first quarter of 2023, placing us well on our way to achieve the midpoint of our 23 adjusted EBITDA guidance. which would be another record year for NLINK. With that, you may now open the call for questions.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of EJ Schultz with RBC Capital. Please proceed with your question.

Great. Thanks. Good morning, guys. My first question, just on the active discussions for the additional 20 million tons of CO2 transportation in Louisiana. what are some of the gating factors to get deals inked? I think at your analyst day, you mentioned the lengthy due diligence process that emitters were going through to choose the best sequestration. Can you just provide any more color on how your discussions are advancing if you're talking mainly to emitters or to the sequestration providers or both? Thanks.

Yeah, thanks, TJ. Good morning. This is Jesse. Look, I think What we said in the investor day is consistent with what we're seeing today. We're seeing a lot of activity both on the emitter side and the sequester side. To date, most of our discussions have been with sequestration providers. Those are progressing. I think when you think about the privacy issue in Louisiana, I think that's a catalyst to get some of these deals off and running. But the activity levels are robust. We were very optimistic that 2023 we will be able to announce a good portion of that 20 million metric tons. So we're well on track. As we said, the sequestration providers and the emitters are making their choices now. The good news is Enlink is the provider, the transportation provider of choice in most of those discussions. So Very positive outlook for 2023.

Okay, makes sense. And then you mentioned some projects such as the Blue Ammonia Production Facility in Ascension Parish that could expand the addressable market in the Mississippi River Corridor, I think 80 million metric tons. Just how meaningful are some of those projects to the addressable market? Just trying to gauge the upside to the 20 million tons that you are currently engaged on.

I think those are in discussions now. I think the blue products, green products that will come out of the industrial corridor there into the international market, there's a lot of interest in those. This is the first one that's on the table. So we view this as a very stable market to a growing market. So the addressable market continues to grow as these new facilities come online. This is a meaningful increase. We don't have the final FID on what their volumes will be, but we see a lot of activity in that industrial space for growth as the international markets are hungry for those.

Ben? I think, TJ, just to kind of broaden that, I think something that's underappreciated a bit is The very fact that we and ExxonMobil and some of our other potential sequestration providers are able to provide a cost-effective CCS solution, that fact in and of itself creates markets. Because if you're a large industrial company and you want to produce a blue product, a necessary prerequisite is you have to produce that product in the place that offers CCS solutions. And because we can do that in South Louisiana, That gives South Louisiana an advantage over other places, not just in North America, but in the world when you think about the competitiveness of the blue economy. So I think that the blue ammonia facility is one example. I think in the coming years, we'll see many examples of those kinds of facilities being cited in South Louisiana, creating market both for CCS and for natural gas.

Okay. Makes sense. Just one more for me, kind of switching gears. On Oklahoma, you're still guiding to double-digit volume growth despite lower natural gas prices. Can you just talk about activity on your acreage in Oklahoma? How many rigs are operating? What would have to change from an activity standpoint to meaningfully change your view on volume growth? Thanks.

Yeah, we've been really happy, as we said in the prepared comments, really happy with the resilience that Oklahoma has shown despite the challenge that we've seen in gas prices. In the first quarter, we were in a range of six to eight rigs operating on dedicated acreage with four of those rigs being operated by Devon and the remainder being operated primarily by small cap publics and private companies. And so we haven't seen a material change in our volume outlook at this point. Maybe a couple of wells around the edges, but it really has been around the edges. It would take a substantial reduction from that six to eight RIDs before we would be concerned about not seeing double-digit volume growth. If you just look in the numbers we reported, you're already seeing it today when you look at the 1Q number for this year versus the 1Q number for last year. And so, again, very, very pleased. And I guess the last comment I'd make there is just to remind you that when we gave the guidance range, including the midpoint that we're reiterating today, we considered the possibility that we would see some slowdown in North Texas and Oklahoma in the second half. Now, we haven't seen that yet. We still think that we may see it. And even if we do see it, we still feel good about being at the midpoint of the adjusted EBITDA guidance range.

Great. Thank you.

Our next question comes from the line of Cade Maureen with Mizuho. Please proceed with your question.

Good morning, guys. Maybe I could start off. There's been a little bit of a delay to permeant egress capacity with the PHP expansion. Can you just talk about how Enlink, again, is positioned to deal with that as far as how comfortable you are feeling getting out of the basin until Matterhorn comes out?

Yeah, good morning, Gabe. It's Ben. We feel good about being able to get out of the basin, and here's why. When we entered into the transportation agreement that went along with our Matterhorn investment, we negotiated for some bridge capacity on the Whistler Pipeline. That, taken together with the capacity that we hold on Northern Natural and on other pipelines, we feel confident about being able to get out of the basin until Matterhorn comes into service because we have the benefit of that bridge capacity. From a price perspective, we hedged substantially all of our natural gas flat price risk, and we also hedged most, almost all, of our Waha basis risk for this year. So we're in good shape in the Permian, both in terms of egress and in price expectations.

Thanks, Ben. And then maybe if I can ask about, I guess, any additional M&A potential out there. I guess with the gas curve coming down here, are you seeing any other ancillary, I guess, private equity-backed systems around yours where maybe seller expectations have become a little bit more reasonable here?

I think it's a little too soon to tell. Markets take time to adjust to what may be a new reality. There has been some deal flow, and as we've said in the past, we look at a lot of things, but we're very disciplined in what we execute on. And I think if you look at the two deals that we did last year, they're good blueprints. for the kinds of deals that we would be looking at in this environment, not dependent on drilling activity to make the economics work, more reliant on operational and capital synergies. That's been the recipe that's worked well for us. And so we may have an opportunity to do some M&A as the year goes on, but I don't think that the market has yet re-based its expectations.

Thanks, Ben. And maybe the last one for me, the stock's obviously been a little volatile here. Historically, your buyback is more skewed programmatic, excuse me, the 200 million that you're targeting. Any chance you could see accelerating that considering some of the share price volatility?

Yeah, thanks, Gabe. You know, I think we're committed to our process, right? The programmatic approach has worked very well the last couple of years. I think when you see the pullbacks, we'll be opportunistic when it's appropriate. But clearly, this is probably a good time to do that.

Understood. Thanks, everyone.

Our next question comes from the line of Spiro Dunas with Citi. Please proceed with your question.

Thanks, Operator. Hey, guys. First question, just maybe want to touch on the outlook for the rest of the year. You mentioned getting to the midpoint. of the, uh, the range. And as I look at the full year, it sort of implies a fairly strong ramp off the first quarter, but you also, I'm pretty comfortable with the plan in place. So just curious if you sort of speak to the pathway to get there and maybe what gives you the confidence at this point in the year.

I think when you look at our, uh, our outlook for 2023, we feel very confident based on the current activity levels in each basin. especially the Permian. We've accounted for that ramp in the third and fourth quarter. So we feel very confident based on our producer activity and the current rig counts that we have. So Ben, do you have anything to add there?

Yeah. Spiro, if you just look at the segment profits that we reported, adjust for the weather impacts that we've provided and annualize those. and compare that to the segment profit that we gave you in guidance, you'll see that we're easily on track in Louisiana and North Texas. Permian, we have a little bit of a ramp there. The segment profit that we provided, excluding plant relocation expenses for the year, was $460 million versus a run rate in the first quarter of about $400 million. But we expect to see a significant ramp in the Permians. Um, as the year goes on and to a lesser extent in Oklahoma. So from where we sit today, it looks very achievable.

Got it. Got it. Okay. So that March sort of ramp that you guys pointed out to in the slides being about 14% of a four Q that maybe is not necessarily just that snapback from the weather event. That sounds like just organically, there's a lot going on beneath the surface. You expect something like that to continue?

That's correct.

Got it. Got it. Okay. Uh, second question, uh, just thinking about commodity sensitivity from here. As we look at the quarter, once again, margins in Oklahoma and Permian seem to be the biggest variance for us on expectations. Volumes kind of came in about right for us anyway. I assume most of that was commodity-driven, maybe some weather impact to your point as well. Once again, as we think about the rest of the year, how are you guys approaching commodity sensitivity? Does 1Q maybe represent a floor for margins? Are you sort of well-hedged at this point?

Yeah, well – So our guidance was premised on $80 crude and the NGL prices that result from that. In reiterating the midpoint today, we're incorporating in our thinking the fact that crude is lower than $80 today. And so we recently did a refresh at $75 crude, recognizing that the market move yesterday probably puts us a little bit below $75. But even at $75 or a little bit below that, we still feel good about being at the midpoint. Now, obviously, that's We've done a lot of hedging, but that's not unlimited. If crude goes to $40, then no, you can see some further degradation in margins. But where we sit today at $73 to $75 for the balance of the year, we feel good about where we are.

Great. Appreciate the color, guys. Thanks again.

Our next question comes from the line of Jeremy Toney with J.P. Morgan. Please proceed with your question.

Hi, good morning. Good morning, Jeremy. I realize I'm probably getting a bit ahead of myself at this point, but wanted to just kind of ask, I guess, as we look a little bit further, you know, maybe into 24, what type of trends, I guess, are – you guys expecting in kind of this more volatile commodity tape and, you know, if I think about the Dow, JV and renewal there, just wondering any broad thoughts that you can share with us as far as, you know, thoughts on activity trends given where the strip has moved now.

Yeah, Jeremy, thanks for the question. I'll start and maybe Ben can follow on. Yeah, I think when we look at the current activity levels given the pullback in commodity prices, we're still very optimistic that, you know, 24 and beyond will be growth. The Dow, specifically the Dow, we don't have all the details on the Dow, Dev and JV, but clearly that's a strategic joint venture. You know, from what we understand today, that is working well, that there's no plans to change that. We would anticipate that rolls into 24. But, you know, it is early, but based on the activity levels we're seeing today, at the current commodity price, in the current price environment, we feel very confident that the robustness of our system will benefit beyond 2023.

Yeah, I completely agree with that. Certainly don't see any change to the long-term growth outlook in the Permian, which as you know is our largest segment. Obviously, Oklahoma and North Texas are a bit more commodity sensitive, and so commodities will matter. But we're seeing a good robust level of activity today, even with challenged commodity prices. We would expect commodities to be a little bit better next year, all else being equal. And then long term, we are bullish on natural gas, and we're bullish on the ability of Oklahoma and North Texas to contribute beyond 2024 alongside the Permian segment.

Got it. That's very helpful. Thanks. And just kind of pivoting here towards TCS. Just wondering if you could provide any updated thoughts when it when it thinks when it relates to the I guess the classics well, you know, process the regulatory process overall in Louisiana doesn't have primacy yet. So it's hard to say exactly how it works. But it seems like they have a lot of tools in their belt that they've outlined to kind of move the process through swiftly. But just in your mind right now, classics well, going through the EPA versus if Louisiana, when they get primacy, I guess, how long do you expect it to take on either side or just any thoughts in general on the processes, one versus the other?

Yeah, Jeremy, I think it's a positive, right? You know, the EPA historically has taken, you know, upwards of five years to approve a Class 6 well permit. Our understanding with the primacy was that would be 18 to 24 months. The good news here is the sequester that we're talking to have been running a parallel process. So the expectation is our deal is to come online in 2025. We think with the primacy that's very doable. However, Exxon and others have been working these permits in parallel, so they're not starting from scratch once Louisiana gets primacy. Again, they don't have the primacy yet, but the timeline should be halved at a minimum, if not better.

That's very helpful. Just a real quick last one, if I could, as it relates to the environment, the construction construct projects, supply chain in general. We saw PHP was pushed back just a little bit there. Just wondering if you're seeing any issues like that on your projects, you know, Whistler, what have you, just trying to get a sense for how the E&C outlook is at this point.

Yeah, with respect to Whistler, we are not aware of any Matterhorn, sorry. I don't know why I said that because you said it earlier, but Matterhorn, with respect to Matterhorn, we are not aware of any permitting or construction delays. The last update we have on it is we're on track. With respect to the CCS business, we've started the procurement process. We have ample time. We have not heard of any bottlenecks or supply chain disruptions that would cause a delay on that project. Permitting is off to a good start. We started that well ahead of the Exxon agreement so we feel very good about the permitting and the supply chain with respect to the ccs project so still online got it i'll leave it there thank you and our next question comes from the line of pranith satish with wells fargo please proceed with your question thanks uh good morning so

I think obviously Louisiana potentially getting primacy is a positive for your CCS business, could get deals to the finish line. But I guess on the flip side, it seems like if I understand it correctly, the approval might not be finalized until 2024. So do you think there might be an air pocket here where emitters and sequesters hold off from signing deals and kind of wait for the approval for FIDing projects in 24, or do you think it doesn't matter because of kind of that parallel process that you described?

Yeah, I think the latter. The parallel process is ongoing, so they're not waiting on that. The issue around the primacy, I think it's very positive. It's been entered into the register, and you've got the comment period. It's a matter of clearing that. So I think the certainty around Louisiana gaining primacy. And if you remember, you know, North Dakota, other states have this. So there is a blueprint and a roadmap to get there. I think they're at the finishing stage here. So we don't view that as a roadblock to getting deals signed. I think, if anything, it's a catalyst to get them over the hop here.

Got it. And then I think you reiterated your EBITDA guidance for the year, but I just wanted to clarify on 2023 CapEx, has that changed at all from the initial guidance? I think it was $510 million. And then maybe if you could provide any early indications on 24 CapEx, would you expect that to be flat with 23, or could it trend lower?

Yeah, the range on CapEx for 23 has not changed. Now, having said that, there's going to be some puts and takes. And we've seen the opportunity already to accelerate some spending that we thought was going to happen in 24 into late 23 to accommodate some additional volume growth in the Delaware. So we expect we're going to be a little bit higher there. We may see some decreases in other places. If, particularly if, we see some degradation in activity, say in Oklahoma or in North Texas, the year goes on, again, too soon to say. So while today we're reiterating the midpoint of adjusted EBITDA, we're not updating the range or telling you where we're tracking on FCFAD, other than to say we're within the range. And it's a little bit too soon in the year to tell whether we're going to be towards the bottom end or the top end of the range. It just depends on how some of the puts and takes on capital go over the course of the year. For next year, it's a little bit too soon to say. I'll state the obvious. We'll have a heavier spending year next year on CCS as we prepare for the Exxon project to go in service in 2025. As things stand right now, we don't have an announced Permian plant project next year. That may change as the year goes on, but right now we don't. And so, again, there'll be puts and takes as the year goes on, and it's a little too soon to be too specific about 2024 CapEx.

Got it. Thank you.

And we have reached the end of the question and answer session. I'll now turn the call back over to Jesse Aranevis for closing remarks.

Thanks to Shamali for facilitating our call this morning. And thank everyone for being on the call today and for your continued support. As always, we appreciate your continued interest in investment in NLINC. We look forward to updating you with our second quarter results in August. In the meantime, we wish you well, stay healthy, and have a great day.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.