Summit Midstream Corporation

Good day, and thank you for standing by. Welcome to the 2024 Second Summit Midstream Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randall Burton, Director of Finance and Investment Relations.

Please go ahead. 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 second quarter of 2024 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 these expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see SMLP's 2023 Annual Report on Form 10-K and Exhibit 99.1, to the partnership's current report on Form 8-K filed with the SEC on June 3, 2024, as well as SMC's registration statement on Form S-4, as declared effective on June 14, 2024, for a listing 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, distributable cash flow, and free cash flow. These are non-GAAP financial measures, and we have provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release. And with that, I'll turn the call over to Heath.

Great. Hey, thanks. Thanks, Randall, and good morning, everyone. Thanks for joining the call today to discuss our second quarter, our 2024 results. And our first call is Summit Midstream Corporation, or SMC. I wanted to start today by thanking all of our unit holders, now shareholders, for your support and participation in our special meeting where our unit holders voted to approve the conversion from an MLP to a C Corp. We believe this transaction will deliver significant benefits by reducing unit holders' tax burden, simplifying Summit's structure to make the equity much easier to own. It will enhance our trading liquidity and greatly expand the universe of potential investors as we continue to execute on our corporate plans. As of August 1, 2024, we have officially converted to a C-Corp, and the common stock has commenced trading on the New York Stock Exchange under the ticker symbol SMC. Additionally, on July 6, 2024, we closed on the refinancing of $575 million of new senior secured second lien notes due in 2029, as well as an upsized $500 million ABL facility also due in 2029. Through this refinancing, we have significantly improved Summit's financial flexibility. We've extended our maturities out to 2029 and created a solid runway to continue to execute on the base business to further commercialize the EE pipeline and to continue to de-lever the balance sheet to achieve our long-term leverage target of three and a half times. And as we accomplish this, then we'll potentially look at reinstating a sustainable distribution policy for our preferred and common equity shareholders. In addition to our focus on EE and executing on the base business, we continue to evaluate several value and credit accretive M&A opportunities to kind of further rebuild our scale and position the platform for continued growth well into the future. We're extremely pleased with the progress we've made towards executing our long-term strategy and believe all of the actions taken this year further positions the company to continue to drive outstanding returns for our shareholders in the coming years. Now turning to operations. we continue to see encouraging operating and financial results across all of our systems our second quarter results were solid despite some operational downtime and curtailments that bill will get into more during his section we connected 34 wells to the system during the quarter and currently have three rigs running behind our systems including one in the barnett from our anchor customer i highlight the barnett because we continue to see our anchor customer connect highly productive wells to the system with 14 wells connected in the second quarter throughout the challenged natural gas price cycle, which is leading to both volume and EBITDA growth in that segment. We're extremely excited about this level of activity behind the system, and as we enter a more supportive natural gas price environment forecast in late 2024 and 2025, we believe there will likely be even more activity and volume behind the system than what we're seeing today. As natural gas demand starts to increase with incremental LNG and power demand, we think that Barnett is in a great position to help fill that demand with low cost, close to the goal supply. We're also seeing robust activity levels continue in the second half of the year in the rocky segment as well, which is also positioning Summit to have a very strong second half of the year. Lastly, in the Permian, we continue to advance discussion with multiple shippers to subscribe the remaining firm capacity on the EE pipeline under long-term contracts. We're very excited about the prospect of filling up EE in the near term and potentially expanding the pipeline via midpoint compression project, which in the aggregate could more than double the current level of EBITDA someone generates from the business. We look forward to providing more updates throughout the year as we make further progress on our commercialization efforts. So just to recap, we've had a very productive year executing on the broader corporate strategy, and with the business continuing to perform well, we continue to expect to achieve our previously stated pro forma adjusted EBITDA guidance range of $170 to $200 million for the year. And we remain super excited about our ability to grow the business and shareholder returns from where we stand today. So with that, I'd like to hand the call over to Bill to provide additional detail on our financial segment results.

Thanks, Heath, and good morning, everyone. Summit reported second quarter net loss of $23.9 million. adjusted EBITDA of $43.1 million, and capital expenditures of $10.5 million, with the majority of the capex spend in the Rockies associated with pad connections. With respect to our small piece balance sheet, we had net debt of approximately $660 million, with an undrawn $400 million ABL credit facility at quarter end, and our available powering capacity at the end of the second quarter totaled approximately $372 million. which includes approximately 4 million of LCs and 24 million of commitment reserve for the 2025 unsecured notes. As Heath mentioned, in July, subsequent to quarter end, we executed a refinancing of our capital structure, which included an upsize, the $500 million ABL credit facility, and a new $575 million second lien note, both of which mature in 2029. Net proceeds from the new note issue and ABL facility, along with cash on hand, were used to tender for all the outstanding 2026 senior secured second lien notes and the remaining 2025 unsecured notes. Now turning to the segments. In the Rockies, which is inclusive of our DJ and Williston Basin systems, we generated adjusted EBITDA of 22.9 million, which is relatively flat from the first quarter. We experienced a 1.4% increase in liquids volume throughput and a 4.8% increase in natural gas volume throughput, which was offset by lower product margin. We continue to experience some operational downtime at a compressor station on our system. This downtime resulted in an increase in the amount of volume Summit had to offload to a neighboring processing plant and impacted our product margin during the quarter by approximately 1.5 million. We expect this downtime to be partially resolved in the third quarter and fully resolved by the fourth quarter. On the crude side, liquids volumes averaged 75,000 barrels a day, a slight increase relative to the first quarter, due primarily to nude wells connected to the system in the first half of the year, partially offset by natural production declines. Natural gas volumes averaged 130 million cubic feet a day, an increase of 6 million cubic feet a day relative to the first quarter, primarily due to the weather impacts we experienced in the first quarter. We connected 18 wells in the DJ and two wells in the Williston during the quarter, and the Rocky segment currently has two rigs running behind the systems and approximately 90 docks. The Permian Basin segment, which includes our 70% interest in the EE pipeline, reported adjusted EBITDA of 7.7 million, an increase of 0.4 million relative to the first quarter, due primarily to higher volume throughput on the pipe. Volume throughput on EE averaged 549 million cubic feet per day, representing a 17.5% increase relative to the first quarter. The peon segment reported adjusted EBITDA of $12.8 million, a decrease of $2.4 million relative to the first quarter, primarily due to production declines, approximately $1 million of known contractual stepdowns, and approximately 200,000 of lower condensate sales during the summer months. We suspect that the extremely low Rockies natural gas prices realized during the quarter impacted customer production, with several of the new pads brought online in 2023 being choked back during the quarter. Volume throughput averaged 289 million cubic feet per day during the quarter. The Barnett segment reported adjusted EBITDA of 5.4 million. an increase of $0.3 million relative to first quarter, primarily due to a 12.8% increase in volume throughput, partially offset by $700,000 increase in operating expenses associated with the timing of certain planned maintenance-related costs. The volume throughput increase is primarily due to our anchor customer completing and connecting 14 new wells during the quarter. And after quarter end, that customer turned in line a five-well pad with initial production of approximately 30 million cubic feet a day. Additionally, another customer on the system who has had production shut in partially resumed flowing approximately 10 to 15 million a day of shutting gas in June. While there's certainly a positive event, we still believe there's approximately 25 to 30 million of shut-in production behind that system currently. There's currently one rig running and 13 ducts down the system. And to give you an idea of how impactful some of these events have been, average volume on the system over the last five days has been averaging over 260 million cubic feet a day, or over 25% higher than the Q2 average throughput report that we're reporting today. And with that, I'll turn the call back over to Heath for closing remarks.

All right. Yeah, thanks, Bill. So as I said earlier, we're very pleased with the second quarter performance and the progress that we made on executing the corporate strategy. We look forward to continuing to build on that momentum throughout the year and certainly look forward to providing further updates on our progress throughout the year. With that, I'd like to thank you for your time and continued support. Operator, please open the call for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Again, as a reminder to ask a question, you'll need to press star 11 on your telephone. I'm sure no questions at this time. Thank you for your participation in today's conference. This does conclude the program.

You may now disconnect.