Summit Midstream Corp (SMC) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the summit Midstream Corporation Fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) Please be advised that today's conference is being recorded. I would like now to turn the conference over to Randall Burton. 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 fourth quarter of 2024 financial and operating results is Heath Deneke, our President, Chief Executive Officer and Chairman; Bill Mault, 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 SEC's quarterly report on Form 10-Q. The quarterly period ended September 30, 2024, which the company filed with the SEC on November 12, 2024. Our 2024 annual report on Form 10K, which will be filed soon, as well as our other SEC filings 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 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.

Thanks, Randall and good morning everyone. Thank you for joining us today to discuss our fourth quarter and full year '24 results.

Summit had a very active and transformational year in '24. As we entered the year, we were midway through a very thorough strategic alternatives review to determine the best path forward to maximize unit holder value. After careful consideration of the alternatives, we elected to pursue a series of transactions and a corporate strategy that we believe would deliver significant value for our unit holders in 2024 and beyond.

The first step was the decision to divest the Northeast segment for $700 million in total cash proceeds, which immediately reduced leverage from 5.4 times to 3.9 times and drove an increase in our unit price from around $17 a share or a unit at the beginning of the year to nearly $30 a unit shortly after announcing the transaction.

Following that, in July of '24, we successfully refinanced the balance sheet with an upsized credit facility and new seconding lien notes. Now this significantly increased our financial flexibility, it reduced our interest expense, and extended our nearest maturity out to 2029.

Then in August with the support from our unit holders, we simplified our corporate structure by converting from a master limited partnership to a C-Corp, which broadened our investor base and significantly improved our overall trading liquidity.

Following the series of transactions, some had emerged in the third quarter of 2024 with a strong balance sheet, a simplified corporate structure that made our equity easier to own, and with ample liquidity and a higher valued equity currency to pursue our corporate strategy to rebuild scale through value and credit accreted transactions.

Then, during the fourth quarter, we executed on that corporate strategy by signing and closing the value and credited creative acquisition of Tall Oak Midstream in the Arkoma Basin.

We financed the tall oak acquisition through a combination of cash and stock which not only materially increased our size and scale, but importantly increased Summit's exposure to natural gas oriented basins that are strategically positioned to ramp up production in coming years to feed the high growth markets and LNG exports in the Gulf Coast region.

The execution of our corporate plans and strategy in '24 resulted in significant value creation for our shareholders as our share price more than doubled by the end of the year.

While we're obviously pleased with our achievements throughout the year and the resulting performance in our share price, we believe there's a lot more value creation ahead as we maintain our financial discipline and continue to execute on our corporate strategy in the coming years.

Our momentum has continued to build as we enter into 2025. In January, we closed on a $250 million dollar add-on to the existing second lien notes, terming out a revolver borrowings and replenishing our liquidity to continue executing on our consolidation strategy.

In February, with the ongoing progress we made on delivering the balance sheet, we announced plans to reinstate the cash dividend on the corporate series A preferred beginning on March 15 of '25, which is a necessary step towards resuming a common dividend in the future.

And yesterday we were pleased to announce another value accretive and strategic bolt on acquisition of Moonrise midstream in the DJ Basin, which further expands some of its gathering and processing capacity in the area at a crucial time as volumes behind our existing DJ assets continue to grow.

We purchased the system at approximately 5 times 2024 EBITDA multiple and financed the $90 million transaction utilizing roughly a ton of equity and 4 tonnes of cash. Moonrise adds $65 million a day of processing capacity to the system, approximately half of which is currently available to support continued growth behind our DJ super system in the coming years.

The Moon Moonrise system is already connected with our existing DJ assets via multiple pipe interconnects, and we expect to extract significant operational and commercial synergies in '25 and beyond with a combined operating footprint.

We remain very excited about the growth trajectory of some of its existing DJ base and position and our ability to capture additional value and creative opportunities in the year ahead.

Moving on to our fourth quarter in 2024, our financial results were in line with management expectations. Some have delivered fourth quarter adjusted EBITDA of $46.2 million in full-year '24 adjusted EBITDA of $204.6 million.

During the year we generated more than $85 million of distributable cash flow. We experienced a consistent level of well connects throughout the year with 156 new wells connected in total. In the Barnet, which is now included in our mid-con segment, we connected 27 new wells to the system, exceeding our original expectations, which led to a roughly 80% volumetric growth from the Q4 of 23 to Q4 of '24.

We're expecting similar levels of development in '25 in the Barnet, and with an active rig running behind our Arkoma system, we're set up for another strong year of growth in the mid-con region. In the Rockies region, we connected 12,090 wells to the system with 37 wells in the Williston and 92 wells in the DJ. This level of activity led to 5% volume growth in the DJ Basin from Q4 of '23 to Q4 of '24.

As we mentioned in the DJ operational update yesterday, we are nearing full utilization of capacity in certain areas of our footprint, which has led to some of our customers electing to moderate or defer development activity behind our system in '25. However, with the acquisition of Moonrise, we do expect to resolve those capacity constraints and expect to see activity levels continue to increase behind our DJ systems in '26 and beyond.

And lastly, we saw a tremendous volume throughput growth on Double E, increasing volumes by roughly 60% from the fourth quarter of '23 to the fourth quarter of '24. We continue to remain confident in our ability to fill up the existing uncontracted capacity with long term take or pay contracts. So 2024 was a solid year for Summit operationally and with a supportive commodity price environment we're looking forward to another strong year ahead.

I'll now briefly hit on our '25 plan and guidance range, and then we'll turn it over to Bill to discuss in more details in his section. We announced full year '25 adjusted EBITDA guidance of $245 million to $280 million which is inclusive of our recent Moonrise acquisition.

We expect to connect 125 to 185 wells to the system in 2025. Similar to previous years, our guidance range incorporates real-time feedback we are receiving from our customers regarding their development plans, and we are tracking rigs and completion crews and permits to ensure that Wellconnects remain on track in 2025.

So just as a refresher to our risking and guidance methodology, if our producers hit their current turning line dates and production targets, we expect to be at the high end of our adjusted EBITDA guidance range in '25.

The low end of our range reflects roughly a 30% reduction in planned well connect activity in '25, mainly due to risking the timing the wells that are slated to come online in the third and fourth quarters and delaying those into '26.

We will continue to keep an eye on activity levels in and around our system and we'll provide updates throughout the year. Our 2025 capital guidance ranges from $65 million to $75 million this year, which includes $15 million to $20 million of maintenance capital.

Our capital budget in '25 is primarily related to well connects in the Rockies and mid-con segments and integration capital related to our recently acquired Arkoma and DJ assets.

Further, I would like to characterize that roughly $20 million of our capital budget in '25 is at one time or non-recurring expense. So as you can think about the business going forward, capital requirements will be closer to the $45 million to $55 million range to support this level of EBITDA in 2026 and beyond.

And with that, I'd like to hand the call over to Bill to provide some additional details on our financial results in '25 guidance.

Thanks, Keith and good morning everyone. As he mentioned, we had a great year and we're extremely excited about how 2025 is shaping up. I'll start by discussing our financial performance, followed by providing a bit more color on 2025 guidance.

Summit reported fourth quarter net loss of $24.8 million, adjusted EBITDA of $46.2 million resulting in full-year 2024, adjusted EBITDA of $204.6 million which includes $30.6 million from the Northeast segment that was divested in the first half of the year. Capital expenditures totaled $15.8 million for the quarter and $53.6 million for the full-year 2024.

With respect to SMC's balance sheet and pro forma for the add-on to the second lien notes we executed in January, we had net debt of approximately $852 million. Our available borrowing capacity at the end of the fourth quarter totaled approximately $444 million which included $1 million of undrawn letters of credit, and now on to the segments.

The Rockies segment, which is inclusive of our DJ and Williston Basin systems, generated adjust of $23.2 million, a decrease of $1.6 million from the third quarter, largely due to a 3% decline in liquids volumes from natural production declines and lower water sales partially offset by a 2.3% increase in natural gas volumes.

Liquids volumes averaged 68,000 barrels a day, a decrease of 2,000 barrels a day relative to the third quarter due primarily to natural production declines. Partially offset by 17 new wells connected to the system during the quarter. However, those 17 wells were connected toward the end of the fourth quarter, so did little to offset natural production declines during the quarter, but will begin contributing in the first quarter of 2025.

Natural gas volumes averaged 131 million cubic feet per day, an increase of 3 million cubic feet per day relative to the third quarter, primarily due to well connects during the second and third quarter, reaching peak production in the fourth quarter.

There were six new wells connected to the system behind our Hereford plant from a customer who recently acquired the acreage. This new six well pad was their first pad in the region, and we expect them to continue developing wells in the area beginning in late 2025.

The Rocky segment currently has 3 rigs running behind the systems and more than 90 dots, which represents the majority of the well connections we are expecting in 2025. The Permian Basin segment, which includes our 70% interest in the pipeline, reported adjusted EBITDA of $7.8 million, a decrease of $0.7 million relative to the third quarter due primarily to lower volume throughput on the pipe. Volume throughput on Double E averaged $613 million cubic feet per day during the fourth quarter.

The peop segment reported adjusted EBITDA of $11.8 million, a decrease of $1 million relative to the third quarter due primarily to a 2.5% decline in volume per put and slight increase in operating expenses.

The mid-con segment reported adjusted EBITDA of $12.8 million, an increase of $5.6 million relative to the third quarter, primarily due to one month contribution from the Arkoma assets that we closed on December 2 and a 29% increase in volume through the system.

As he mentioned, we connected '27 wells to the system in the Barnet throughout the year. That has led to some pretty significant volume growth. Additionally, as of December 2024, the customer who started the year was shutting production behind that system has started reflowing all of their shut in volume at this time. With a supportive natural gas price environment, we would expect to see that volume remain online going forward.

There are currently two rigs running behind the system and subsequent to year end, the main customer in the Arkoma who continues to run a rig has turned in line 6 wells that are producing approximately $50 million cubic feet a day which are performing above our internal expectations in the aggregate.

I'd now like to focus on our 2025 guidance. And to reiterate his comments, the midpoint of our guidance range risks the timing of well connections relative to what customers have provided. The low end risk all that even further, and the high end assumes customers hit their timing targets. We currently have five rigs behind the system and more than 100 docks, which represents 65 of the expected well connections at the mid-point of the range.

Approximately 75% of the 2025 well connections are from crude oil oriented areas and 25% from natural gas-oriented areas. Crude and natural gas prices remain supportive of continued development across our entire system.

In the Rockies, we are currently expecting 95 to 140 well connects in 2025 with approximately 80 to 100 coming from the DJ and the remainder in the Wilson. This level of activity will drive volume throughput growth in gas volumes and a relatively flat liquids volume throughput. Nearly half of the wells in the wells in this year are expected towards the end of the year, so we'll have minimal contribution to this year's volumes and earnings.

Now to the mid-com we are expecting 30 to 45 wells in 2025, which with the addition of the Arkoma assets will lead to significant volume growth year over year. We currently have one rig running in the Barnet and one rig running in the Arkoma, and as I already mentioned, we have already connected six wells in the Arkoma in 2025, so we're off to a great start.

With a supportive natural gas price environment as we are currently seeing, we believe producers in this region will be incentivized to accelerate development plans if possible.

Shifting to the [permium] year over year expected growth is primarily related to contractual step-ups in long term take or pay contracts executed in the first half of 2024 that will take effect through the first half of 2025.

Quickly on the peons, we are expecting no new wall connection in 2025, which will result in decline in volume in the EBITDA compared to 2024. Finally, I'll spend some time discussing CapEx and the balance sheet. We're expecting to spend $50 million to $55 million in growth CapEx for 2025 and $15 million to $20 million of maintenance CapEx.

The majority of the growth cap backs for 2025 will be spent in the Rockies and Arkoma region where we have a number of pad connects, given the amount of well connections expected for the year and have some integration capital in the Arkoma that will enable us to realize operating synergies in the future.

With $245 million to $280 million of expected adjusted EBITDA and $65 million to $75 million of total capital expenditures, we expect significant free cash flow generation and debt paid down throughout the course of the year.

Based on the mid-point of our guidance range, we expect to generate over $100 million of free cash flow available to pay down debt and trend toward our 3.5 times leverage target.

And with that, I'll turn the call back over to Heath for closing remarks.

Thanks, Bill. Look, as discussed on the call today, we're very pleased with the progress we've made in 2024 and are excited about the outlook and the opportunities set for Summit to continue to draw value for our shareholders in '25 and beyond.

We continue to see strong operating momentum and high free cash flow generating growth from our existing portfolio of assets. And we believe we are in an opportunity rich environment to continue to scale up the business through value and credit of creative acquisitions in the future.

We're excited about the opportunity to further expand our investor base as we continue to execute on our base business plans and our corporate strategy.

As Bill mentioned in his remarks at the midpoint of our guidance range, we expect to generate more than $100 million of leverage-free cash flow. That's after growth and maintenance capital in 2025. We plan to utilize that to continue to delever the balance sheet towards our 3.5 times long-term leverage target.

We hope that our current and prospective investors are taking note of the sizable amount of distributable free cash flow that our business model generates, as well as our ability to consider a sustainable return of capital program as a mechanism to further enhance shareholder returns in the coming years as we achieve our targeted leverage profile.

And with that operator, I'd like to open up the call for questions.

(Operator Instructions)

At this time, I show no questions in the queue. This does conclude today's conference call. Thank you for participating. You may now disconnect.