Summit Midstream Corporation

Welcome to the Q1 2022 Summit Midstream Partners LP Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press zero, then one on your touchtone phone. I will now turn the call over to Ross Wong, Vice President, Finance Treasurer and Investor Relations.

Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release, please visit our website at www.summitmidstream.com, where you'll find it on the homepage, events and presentations section, or quarterly results section. With me today to discuss our first quarter of 2022 financial and operating results is Heath Deneke, our president, chief executive officer and chairman, Bill Malt, our chief financial officer, along with other members of our senior management team. Before we start, I'd like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses, and capital expenditures. They may also include statements concerning anticipated cash flow, liquidity, business strategy, and other plans and objectives for future operations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see our 2021 Annual Report on Form 10-K, which was filed with the SEC on February 28, 2022, as well as our other SEC filings for a list of factors that could cause actual results to differ materially from expected results. Please also note that on this call, we use the terms EBITDA, adjusted EBITDA, and distributable cash flow. These are non-GAAP financial measures, and we have provided reconciliation to the most directly comparable GAAP measures in our most recent earnings release. And with that, I'll turn the call over to Heath.

Thank you, Ross, and good morning, everyone. Summit reported first quarter adjusted EBITDA of $56.8 million, which exceeded our internal expectations and provided a strong start to the year. We experienced over 20% quarter over quarter growth in crude oil volumes, which was driven by 25 wells that came online over the past six months. We also benefited from a full quarter contribution of seven large Utica wells that produced over 200 million a day on average during the quarter. We also connected 15 wells during the first quarter, which was in line with our expectations, and we had approximately 35 drilled but uncompleted wells as of quarter end. Looking ahead, we were very encouraged by the increasing levels of producer activity across many of the basins that we operate in. It's been quite a turnaround in the projected activity from our customers over the past few months. And now we currently have seven rigs running behind our systems and based on updated producer guidance, we now expect to bring on 30 to 40 new well connects during the latter half of 2022. With these additional wells, we're now projecting 105 to 150 wells for the year which is nearly a 40% increase relative to the assumptions we used in our original guidance range. Given the anticipated timing of these new wells, however, we expect this activity will mostly impact our fourth quarter results in 2022, but it will build a lot of momentum as we head into 2023. This new activity, in combination with a strong Q1, gave us confidence to increase the bottom of our original adjusted EBITDA guidance range by $10 million and establish a new range of $205 to $220 million. We believe the increase in activity levels we're seeing at Summit and within the U.S. more broadly is a clear sign that producers are now beginning to build confidence in market fundamentals that support the back end of the forward price curves. Since the beginning of the year, we've seen a 17% increase in WTOF futures, 29% increase in Henry Hub futures, along with an approximate 20% increase in U.S. rig count. With long-term natural gas and crude oil futures currently trading around $4 per mm BTU and over $70 a barrel, virtually all of the inventory behind our systems is economic to develop at current levels. As a result, we've certainly seen permanent activity levels increase and are having very encouraging conversations with producers regarding plans to further ramp activity levels on our systems in 2023, particularly in the Barnett, the Piance, the Utica, and Williston Basins. As an example, in the Barnett, we have 23 recently approved drilling permits, and in the Peontz, we are working with our customers on a 170-well development program, which is scheduled to start in 2023. In the Utica, we're currently expecting a steady increase in new well connectivity activity next year, which could be further bolstered by upstream consolidation in the region. And in the Willison, we are excited about the commercial prospects related to an agreement we previously announced with a new customer that includes a new 50,000 acre area of dedication along our polar and divide liquid systems. And we're also in the process of securing new commercial agreements that we think can add significant acreage to our bison gas system later in the year. Last but certainly not least, the Permian Basin continues to lead the way in the resurgence of producer activity levels in the US, which we believe will drive significant volume growth in the basin and behind our lane system and the EE pipeline. At the current level of rig activity in Eddie and Lee counties, our projections indicate that existing residue gas takeaway capacity out in New Mexico will become constrained in late 2023 to the early 2024 timeframe. And I'm sure many of you are also following the news regarding new pipeline expansions to increase residue gas takeaway from Oaxaca, Texas to the Gulf Coast. Both of these dynamics put EE in a great position to fill up the remainder of our current 1.35 BCF a day of capacity over the next couple of years. Additionally, we are advancing plans to potentially expand EE to over 2 BCF a day via very timely and cost-effective midpoint compressors from the project. We think we're very well positioned to see meaningful growth out of this highly strategic Permian asset in the coming years. Before turning the call over to Bill, I also wanted to spend a little bit of time on M&A. So look, I think we all know M&A activity is certainly continuing to pick up momentum in the midstream sector. We've had several GNP transactions that have been announced over the past several months. And at Summit, we continue to think that M&A will be an important part of the story going forward. We are pursuing both acquisition and divestiture opportunities that can help streamline our portfolio while building in-basin scale and synergies that we believe will lead to accelerated and highly accretive growth in the coming years. As we have discussed previously, anything that we transact on will be both credit accretive and long-term value accretive for our unit holders. While we're certainly encouraged with the opportunity set around our footprint, both organically and through strategic A&D opportunities, let me be clear that we will remain fully committed to maintaining our capital discipline, growing free cash flow, and continuing to improve the balance sheet. With that, I'll hand the call over to Bill Malt to provide additional details on our financial results.