USA Compression Partners LP

Good morning and welcome to the USA Compression Partners LP fourth quarter 2022 earnings call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need 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 Chris Porter, Vice President, General Counsel, and Secretary. Thank you. Please go ahead, Mr. Porter.

Good morning, everyone, and thank you for joining us. This morning, we released our operational and financial results for the quarter and year-ended December 31, 2022. You can find a copy of our earnings release as well as a recording of this call in the investor relations section of our website at usacompression.com. During this call, our management will discuss certain non-GAAP measures. You will find definitions and reconciliations of these non-GAAP measures to the most comparable U.S. GAAP measures in our earnings release. As a reminder, our conference call will include forward-looking statements. These statements include projections and expectations of our future performance and represent our current beliefs. Actual results may differ materially. Please review the statements of risk included in this morning's release and in our filing. Please note that information provided on this call speaks only to management's views as of today, February 14, 2023, and may no longer be accurate at the time of a replay. I'll now turn the call over to Eric Long, President and CEO of USA Compression.

Thank you, Chris. Good morning, everyone, and thanks for joining our call. I'm joined on the call by Eric Scheller, our COO, and Mike Pearl, our CFO. I would like to begin today's call by highlighting USA Compression's continued operational and financial improvements that were outlined in this morning's earnings release. For the fourth quarter 2022, USA Compression generated record quarterly revenues, coming in just slightly above $190 million. These record revenues were enabled by continued quarter over quarter fleet utilization improvements that resulted in a fourth quarter utilization exit rate of just under 92%. Along with increased utilization, we saw record setting quarterly per horsepower average revenue and an approximate 10% increase in quarter over quarter distributable cash flow coverage, which came in at 1.18 times. We are very pleased with our fourth quarter results, which we believe speak to the durability of our cash flow stream and highlight the benefits of our focus on disciplined capital investment, which allows us to grow our fleet organically while improving our utilization rates and financial performance. Last quarter, we discussed our positive views on the energy macro environment and our belief that we are in the early innings of a commodity price super cycle. Our views have not changed. we continue to expect the commodity price backdrop to remain supportive of production growth, which in turn continues to support the long-term demand for natural gas compression services. We believe the producer's continued disciplined capital investment approach will sustain tightness in energy markets into the foreseeable future, thereby providing a commodity price backdrop that is supportive of continued drilling and therefore supportive of current and future demand for natural gas compression services. Last quarter, we also explained that USA Compression's operational and financial performance is more dependent on the production cycle than on the drilling cycle that correlates more closely with near- to medium-term commodity prices. In recent weeks, the spot price for natural gas declined to under $3 per decatherm and remains depressed compared to historic levels as mild winter weather LNG export delays and rising inventories continued to depress spot and forward strip price natural gas prices. This sustained price decline was not anticipated, but also was not disruptive to our business. I would like to take our prior quarter analysis one step further to articulate specifically why near to medium term disruption in natural gas prices do not change our views on the future demand for our natural gas compression services. A large percentage of USA Compression's fleet horsepower is located in basins that feature crude oil production. It is not possible to produce crude oil from shale without also producing associated gas that must be processed, treated, and or transported. During periods of depressed natural gas spot prices, associated gas is considered somewhat of a byproduct of produced oil. However, natural gas status as a byproduct does not mitigate the immediate need to transport, process, or otherwise responsibly handle associated gas that is produced alongside crude oil. So long as crude oil production remains economic, producers will continue to produce oil along with associated gas volumes that require compression services to ensure proper and responsible natural gas takeaways. Current surveys estimate break-even WTI prices for existing U.S. onshore wells at approximately $30 and in the mid-$50 range for newly drilled wells. At these break-even prices, we expect incremental drilling to continue, which supports future demand for natural gas compression services, irrespective of current natural gas spot prices. Even if WTI prices do not support new drilling, currently producing U.S. onshore shale wells continue to mature, causing the productive ratio of gas to oil to increase, which increases demand for natural gas compression to ensure the consistent volume flow of oil from existing wells. In USA Compression's other operating regions, such as Appalachia, Marcellus, there is little to no oil, so spot prices for WTI do not provide the same support for continued natural gas production. In these gassy basins, pipeline permitting restrictions and depressed natural gas spot prices present challenges to future natural gas production growth. Notwithstanding, producers continue to produce from existing wells because shutting in wells carries the risk of permanently damaging the reservoir and may cause financial detriments arising from firm transportation commitments. Over time, continued natural gas production across these basins decreases field pressures, which increases the need and demand for additional natural gas compressions. In basins like Appalachia, Marcellus, depressed natural gas prices are conducive to USA compression maintaining its current service levels with improved natural gas pricing presenting opportunities for incremental natural gas compression growth in the future. To summarize, we do not view seasonally dislocated natural gas prices as a meaningful headwind to the pillars of USA compression strategy that include generating a durable stream of cash flow from our existing fleet, improving our financial performance by increasing fleet utilization and practicing returns-based capital investing, reducing leverage, and achieving financial optionality. Before turning the call over to Eric Scheller to discuss fourth quarter operating results, I would like to make a few comments regarding safety. As a company, the most important thing we can do is ensure that our employees return home safely each day. We are extremely proud of our tireless focus on safety, that has resulted in a 2022 total recordable incident rate that was more than 80% lower than the industry average. This is a significant accomplishment, and I thank every USA Compression employee for their commitment and strict adherence to our safety policies and procedures. With that, I will turn the call over to Eric Scheller, our COO, to discuss our fourth quarter operating highlights.