Summit Midstream Partners LP (SMLP) 2015 Q3 法說會逐字稿

Welcome to the third-quarter 2015 Summit Midstream Partners LP earnings conference call. My name is Christine, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded. I will now turn the call over to Blake Motley. You may begin.

Thanks, operator, and good morning, everyone. Thank you for joining us today to discuss our financial and operating results for the third quarter of 2015. If you don't already have a copy of our earnings release, please visit our website at www.summitmidstream.com, where you will find it on the home page or in the news section.

With me today to discuss our quarterly earnings are Steve Newby, our President and Chief Executive Officer; Matt Harrison, our Chief Financial Officer; and Marc Stratton, our Senior Vice President of Finance.

Before we start, I would 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 provide no assurance that such expectations will prove to be correct. Please see our 2014 annual report on Form 10-K as updated and superseded by our current report on Form 8-K, which was filed with the SEC on September 11, 2015, as well as our other SEC filings for a listing of factors that could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 adjusted distributable cash flow. These are non-GAAP financial measures, and we provide reconciliations to the most directly comparable GAAP measures in our most recent earnings release.

With that, I will turn the call over to Steve Newby.

Thanks, Blake. Good morning, everyone, and thanks for joining us on the call today. Let me first weekend by wishing everyone a happy early Veterans Day. Approximately 15% of our workforce at Summit are veterans, so Wednesday is a special day for us.

I will begin today by discussing our third-quarter highlights, and then I will turn the call over to our Senior Vice President of Finance, Marc Stratton, for additional details on our third-quarter financial results. I will end the call with additional comments on our outlook for SMLP for the balance of 2015, the ongoing development activities at Summit Investments and the decision by Energy Capital Partners to review strategic options for Summit Investments.

Earlier this morning, we announced financial and operating results for the third quarter of 2015. For the quarter, we reported adjusted EBITDA of $48.5 million, which was down 9% over the third quarter of 2014 and down 9.7% relative to the second quarter of 2015. Adjusted distributable cash flow for third quarter of 2015 totaled $34.7 million, which was down 8.8% over the third quarter of 2014 and down 14.1% relative to the second quarter of 2015.

On October 22, we announced our third-quarter 2015 distribution of $0.575 a unit, which represented a 6.5% increase over the third quarter of 2014 and a 0.9% increase over the second quarter of 2015. This was SMLP's 12th consecutive quarterly distribution increase since going public in December of 2012. Our distribution coverage for the quarter was 0.85 times, and 0.99 times coverage for the first nine months of 2015. Consistent with previous guidance, we expect our coverage in the third and fourth quarters of 2015 to get below one times, with an average for the year of approximately 0.95 times.

Let me begin today's discussion by saying Summit's business model is built to withstand the current commodity cycle. Over 75% of our third-quarter volume throughput is covered by our MVC contracts through 2019. Our revenues are 97% fee-based, our balance sheet is strong and we have no plans or need to issue equity to fund our existing business in 2016. We are not immune from what is going on fundamentally in the industry, but we do believe we are well-positioned.

With that said, let's review the third quarter in detail. Our results in the third quarter of 2015 were influenced by the continued weak commodity price backdrop, which resulted in volume declines relative to the second quarter of 2015 on all of our operating segments. If you recall back in March, when we updated our 2015 financial guidance, we expected volume declines on our asset base across the second half of this year, based on price assumptions of $55 crude oil and $2.75 natural gas. We are obviously below those levels currently, but, other than specific timing issues related to well completions on our Barnett and Marcellus systems, volume results have generally been in line with our 2015 expectations.

Summit's anchor customers continued to be active during the quarter, albeit at a slower pace than previous quarters. Instead of turning wells over to completion activities, in general our customers have chosen to defer completion work and as result have accumulated a significant inventory of drilled and uncompleted wells, which you will hear me refer to as DUCs throughout the call. We expected this inventory of DUCs, which I will walk you through in detail, for each of our operating segments, coupled with ongoing drilling activities, to represent identifiable future volume catalysts that we expect will drive our volume throughput beginning in the fourth quarter of this year and into the first half of next year.

Other growth catalysts include the Stampede Lateral project on our Polar & Divide system, which is covered by minimum volume commitments. We expect that project to be commissioned by the end of this year.

The majority of SMLP's third-quarter natural gas volume decline versus the second quarter can be explained by our Barnett gathering asset, DFW Midstream, which declined from 356 million cubic feet a day in the second quarter to 325 million cubic feet a day in the third quarter.

Multiple producers have been active throughout 2015 drilling new wells. However, completion activity has been delayed during the year, which has led to natural production declines in addition to the declines we experienced when existing wells from these already active pads are temporarily shut in for drilling and completion activities.

As a result, DFW's customers have accumulated a DUC inventory of 28 wells, which represent nearly 100 million cubic feet a day of initial production, or more than 25% of our third-quarter volume throughput. 13 of these DUCs from two separate customers are expected to begin production in November, which we expect will drive a significant increase in 2015 exit volumes versus the 325 million cubic feet a day we averaged in the third quarter.

10 of the 13 DUCs were drilled from a single pad site that had 6 existing wells, one of which is one of the largest wells ever drilled in the Barnett with initial peak month rate of 10 million cubic feet a day. All 6 of the existing wells were off-line in the third quarter as our customer initiated his completion activities. So as you can imagine, we are very excited to see the production potential from this large pad site contributing to our Barnett throughput beginning this quarter.

These near-term well connects, coupled with other DUC conversions that are scheduled to occur in the first half of 2016, are expected to reverse our recent sequential quarterly volume declines and ultimately drive volume and cash flow growth at DFW in 2016.

Antero volumes on the Mountaineer Midstream system, which originate from interconnections with Crestwood and Antero Midstream's low-pressure gathering system, average 457 million cubic feet a day in the third quarter, down from 542 million cubic feet a day in the second quarter. A substantial majority of the volume declines quarter over quarter were expected, as Antero has been pretty vocal about deferring completions on 50 wells in the region until certain takeaway pipelines exiting the Sherwood complex are commissioned. We expect 32 of those 50 DUCs will be gathered by low-pressure third-party systems that will ultimately flow into the Mountaineer system and that this inventory will drive volume and cash flow growth beginning the first half of 2016.

In addition to natural declines, certain third-party operational issues upstream of the Mountaineer system created headwinds for volume throughput during the quarter. Most impactful to the third quarter related to a third-party compressor station that delivers approximately 45 million cubic feet a day of natural gas onto the Mountaineer system and was down for the majority of July. We estimate that this third-party issue impacted our quarterly volume by approximately 12 million cubic feet a day.

Volumes on our Grand River system averaged 591 million cubic feet a day in the third quarter, which was down 2.2% from the second quarter. Volume declines were primarily a result of Encana's continued lack of drilling in the area and slower drilling activity from WPS. As we have noted in the past, we are highly contracted on Grand River, particularly with Encana, and volume declines will not necessarily affect our cash flow from the area.

However, we do have some direct mining price exposure in the area, with approximately 5% of our total gathered volumes in the Piceance subject to POP contract that we have in our processing business. We also retained and monetized condensate drip as volumes moved through our gathering system. Not only is the third-quarter period seasonally our lowest for condensate yields, but our realized price for condensate on the legacy Grand River system has effectively been cut in half versus the third quarter due to the decline in crude oil prices.

Partially offsetting Encana and WPX production declines were volume growth from several other customers in the area including Ursa and Black Hills, who have remained active in the Piceance in 2015. In fact, in the third quarter we executed an expansion agreement with Ursa that contemplates a cost-effective solution for creating approximately 40 million cubic feet a day of additional throughput capacity on our system. This new capacity will be utilized by Ursa as it executes its drilling plan over the next two years to drill a minimum of 70 new wells, the majority of which we expect to come online in 2016. The Ursa expansion will add new MVCs to some of the portfolio of underpinnings and represents an encouraging sign that attractive commercial deals for both the producer and midstream provider are still getting done in the Piceance Basin.

Our Bison Midstream system, which reflects the performance of our Williston Basin gas segment, gathered an average of 17 million cubic feet a day of associated natural gas production in the third quarter, which was flat with the second order of 2015 and in line with our expectations. Drilling activity behind the Bison system has been negligible in 2015. However, the throughput basin on the system has been resilient and has generally outperformed our decline curve expectations. Our largest customer by volume in this area is under a POP contract and actually saw some price improvement on this front on a quarter-over-quarter basis as our realizations in the third quarter were $0.72 in MCF versus $0.61 in MCF in the second quarter.

The third quarter of 2015 represented the first full quarter of SMLP's ownership of Polar & Divide, the crude oil and produced water gathering system in the Bakken, which was acquired from a subsidiary of Summit Investments in May of 2015. Just to remind everyone, our financial and operating results for all historical periods discussed today include the as-polled historical results for Polar & Divide.

Total volume throughput on Polar & Divide averaged 51,000 barrels a day in the third quarter, down 4% from 54,000 barrels a day in the second order and up 54% from the 33,000 barrels a day in the third quarter of 2015.

In terms of product mix, we averaged 43,000 barrels a day of crude oil in the third quarter, up 80% from the prior year and almost 3% quarter over quarter. Our produced water transportation volumes were 9,000 barrels a day in the third quarter, down 11% from the prior year and down 20% quarter over quarter. Quarterly produced water volumes were impacted by Summit's construction activities on the Thomas Lateral, a produced water mainline that handles 2,000 to 3,000 barrels per day of throughput. This line was taken out of service in the third quarter for repairs. As a result of this work, which lasted for almost all of the third quarter, we lost an average of 2,000 barrels a day of produced water throughput during the quarter. The line was recommissioned in mid-October.

Summit remained active in the third quarter, executing its ongoing expansion projects to connect new pads, primarily for Whiting and Savannah, in addition to making significant headway on the Stampede Lateral project, which we expect to commission by the end of 2015. Our customers operated between 4 to 8 drilling rigs during the quarter, and at the end of the third quarter we had more than 50 DUCs identified upstream at the Polar & Divide system. We expect that these DUCs will begin producing in the fourth quarter and well into 2016, and they represent a tangible and identifiable future catalyst for volume growth in the system.

Furthermore, we are finalizing our construction activities related to the Stampede Lateral right now, and we expect that project to begin generating cash flow upon its commissioning in the next two months. As a reminder, the Stampede project is underpinned by a seven-year minimum volume commitment contract.

Overall, we remain optimistic on near-term growth drivers associated with the Polar & Divide system, namely the connection of the existing DUC inventory, ongoing drilling activities in the area and the Stampede Lateral project coming online. We continue to expect a significant level of cash flow growth in 2016 compared to 2015 despite the lower for longer commodity price backdrop that seems prevalent in the industry today.

Stepping back, the volume declines we guided to back in March of this year have come to fruition as planned and been slightly steeper than expected, mainly due to delayed completions in two areas: the Barnett and Marcellus. We are cautiously optimistic this trend turns itself around over the next several quarters, given the number of DUCs that are upstream of our various gathering systems, the level of ongoing drilling activity across our systems and as existing projects under construction come online.

Before turning it over to Marc, I will end where I began. We believe our business model is well-suited on a relative basis for a prolonged low commodity price environment, given our limited direct mining price exposure, diversified operations, high level of contractual MVCs and strong balance sheet.

So with that I, will turn it over to Marc to review the quarterly financial results in more detail.

Thanks, Steve. Adjusted EBITDA for the third quarter of 2015 was $48.5 million, compared to $53.2 million for the third quarter of 2014, a decrease of approximately 9%. The $4.7 million decrease of adjusted EBITDA was primarily due to the decrease in volume throughput on our Barnett Shale and Piceance Basin systems, partially offset by increases on our Marcellus Shale and Williston Basin liquids systems. In addition, the reduction in commodity prices impacted our percent-of-proceeds agreement in the Williston and our condensate sales revenue in the Piceance. Adjusted EBITDA in the third quarter of 2015 included approximately $13.9 million related to MVC mechanisms from our gas gathering agreement. This amount included $35.2 million of minimum shortfall payments that were recognized with gathering revenue, $30.5 million associated with the net decrease in deferred revenue related to MVC shortfall payments and $9.1 million associated with quarterly adjustments related to future projected annual MVC shortfall payments. Additional tabular detail regarding our MVCs is included in the third-quarter earnings release.

SMLP reported net income of $23.6 million for the third quarter of 2015, compared to net income of $7.8 million in the third quarter of 2014. Adjusted distributable cash flow totaled $34.7 million for the third quarter of 2015. This implies a distribution coverage ratio of 0.85 times relative to our third-quarter distribution of $0.575 per limited partner unit to be paid on November 13, 2015.

Capital expenditures for the third quarter of 2015 were approximately $29.1 million, of which $2.1 million was classified as maintenance CapEx.

As of September 30, 2015, we had $304 million of indebtedness outstanding under our revolving credit facility and $396 million of available borrowing capacity. Total leverage as of September 30, 2015 was 4.3 times.

SMLP expects adjusted EBITDA for 2015 and distribution per unit to be at or slightly below the low end of previous guidance, $210 million to $220 million for adjusted EBITDA and 4% to 6% for distribution per unit. This guidance reflects the full year of Polar & Divide's results.

Now I will turn the call back over to Steve.

Thanks, Marc. With respect to financial guidance, we expect adjusted EBITDA for the full year of 2015 and DPE growth for 2015 to be at or slightly below the low end of our previous guidance of $210 million to $220 million for adjusted EBITDA and 4% to 6% for DPU growth. We expect that this level of adjusted EBITDA will generate full-year distribution coverage of approximately 0.95 times.

With respect to distribution growth guidance, we have grown our distribution 2.7% year to date versus the 56 per-unit distribution paid in the fourth quarter of 2014. We intend to evaluate future quarterly distribution decisions in the context of balancing distribution growth versus distribution coverage while taking into account our prevailing distribution yield. Again, this guidance assumes no additional drop-downs for the balance of 2015.

Given that our customers continue to formulate their drilling budgets and production plans for 2016, we are not yet prepared to provide financial guidance for fiscal year 2016. We plan to do so in early 2016 once we have better clarity on our customers' drilling and production plans.

With respect to financial performance across the entire Summit family including Summit Investments, the third quarter of 2015 was the strongest quarter we've ever had, primarily due to the significant ramping up of volumes across our Utica gathering assets. Drilling activity continues to be strong across our Utica service area, particularly in the dry gas window.

As a reminder, Summit Investments owns a 40% interest in Ohio Gathering and Ohio Condensate, two JVs with Markwest Utica EMG in the southeastern core of the Utica Shale. Ohio Gathering, or OGC, owns and operates a large-scale natural gas gathering system in southeastern Ohio covering acreage that spans the condensate-rich gas and dry gas windows of the Utica Shale.

The dry gas gathering system began service in late second quarter of this year, which helped increase total gathered volumes by 31% from 582 million cubic feet a day in the second quarter to 762 million cubic feet a day in the third quarter. Year to date, volumes across the OGC system averaged 615 million cubic feet a day.

For those of you who follow Markwest, they indicated on their third-quarter earnings call last week that they expect volumes on OGC to increase 100% in 2016 versus 2015, which is very encouraging for our financial outlook on that asset.

Ohio Condensate is a 23,000-barrel-a-day condensate stabilization complex which was operating at nearly full capacity in the third quarter. This facility is becoming a destination complex for large-scale condensate production across the Utica and Marcellus shale plays.

Summit Midstream Utica is Summit's wholly owned and operated dry gas gathering system that is being developed in Belmont County, Ohio, for XTO Energy. During the third quarter, two of Summit Utica's (inaudible) facilities were commissioned and are now in service with total throughput capacity of 300 million cubic feet a day. Currently, we are gathering approximately 75 million cubic feet on the system, which is up from an average of 42 million cubic feet a day in the third quarter. And we expect to see significant volume increases over the next several quarters. The Summit Utica system delivers into Energy Transfer's recently commissioned 2.1 BCF a day Ohio River pipeline header.

Our positive news wasn't isolated to the Utica because in October we amended and expanded our gathering agreement with our anchor customer on our Niobrara-associated gas gathering and processing system in Weld County, Colorado. We will begin an upgrade and expansion of the plant to 20 million cubic feet a day of capacity in exchange for a first gas dedication from acreage in southern Wyoming, which is currently producing associated gas from the Codell formation. We are excited about this commercial development and the potential we had to execute additional system expansion in the future.

We also announced today Energy Capital Partners, the private equity firm that controls Summit Investments, is working with our team to explore and evaluate strategic options to enhance the value of this investment in Summit Investments' NSMLP, including but not limited to pursuing a sale or other divestiture of its ownership interest in Summit Investments, which could result in a change of control of SMLP, pursuing an initial public offering of interest in the general partners of SMLP, augmenting Summit Investments' previously announced plan to execute $400 million to $800 million of drop-down transactions with SMLP each year through 2017, including potentially accelerating the overall drop-down schedule or, in light of the recent market conditions, adjusting the valuation metrics or financing plans to facilitate the drop-down plan. Or, finally, other forms of sponsor support for SMLP in light of recent market volatility such as the unit repurchase program that could involve open-market purchases of SMLP common units and transactions to be executed from time to time as market conditions permit.

I can't comment much further than this on their announcement, but I will remind everyone that Summit Investments owns the following assets: the GP of SMLP, including the incentive distribution rights, operating assets in service and under development and Ohio, Colorado and North Dakota and nearly 30 million common and subordinated units of SMLP.

As ECP commented in our press release this morning, the evaluation criteria for moving forward with any alternative will take into account not only the significant operating and development asset base that we have at Summit Investments, but also the 30 million SMLP units that they own and the incentive distribution rights. ECP has also assured us that it is not currently evaluating alternatives that would decouple the drop-down inventory at Summit Investments from SMLP.

Of course, our lawyers would not let me mention any of this without also saying that there can be no assurances that any particular transaction or other course of action will be pursued or, if any transaction was consummated, what a future owner of Summit Investments would do.

SMLP and Summit Investments do not currently intend to disclose further developments with respect to the process except to the extent a specific transaction occurs, a review process is concluded or it is required by law or otherwise deemed appropriate. A review of strategic options is expected to be completed by the end of this year, and we expect to provide more clarity around our drop-down guidance when we provide fiscal year 2016 guidance in the first quarter of 2016.

Given the overall industry backdrop, some people are trying to extrapolate from ECP's strategic review the idea that somehow something has changed with the long-term plans or performance of the Summit enterprise. This is the classic they-must-know-something-we-don't argument, given the overall backdrop of the industry. I would caution against that line of thinking because the motivations of financial investors often include factors other than the long-term outlook of the underlying business. This is especially true with an investor that was part of the formation of Summit more than six years ago and has provided substantial and patient equity capital along the way.

In light of this, I would ask our investors to take a step back and view the situation with these facts in mind. The Summit enterprise overall had a record third quarter financially, our best quarter ever. We are predominantly in the core area of most of our operating areas including a very large position in the core area of the most economical basin in the country, the Utica.

Finally, the Summit enterprise, both our MLP and GP combined, will grow well into the double digits on an EBITDA basis when comparing 2015 to 2016. Our challenge is not overall growth but how to efficiently and effectively move our development assets from our GP to our MLP in an accretive manner in what is a challenging overall capital markets backdrop for almost all MLPs.

With that, I will open it up for questions.

(Operator Instructions) Helen Ryoo, Barclays.

Just a couple of follow-ups on the strategic options you mentioned. When you talk about potentially accelerating the drop-down schedule in light of the current market conditions, do you need to wait till the capital market opens up? Or how do -- if you were to pursue this scenario, how are you thinking about funding?

Helen, it's Steve. I think in light of that option, I would say an acceleration or any drop-down at this stage is going to need substantial GP support. So that's how we're thinking of it.

Okay, so potentially just GP taking units. As it ties into the possibility of sponsor unit repurchase program, I think -- is one linked to the other?

I think GP taking units is just one option that we have. There's multiple things the GP could do to help facilitate the drop-downs and in this environment would do or need to do.

Okay. And if you decide to do this, we will hear about it in the next six weeks or so, since you are going to conclude this (multiple speakers) --

That's right. The acceleration of the drop-downs is one of the options we are evaluating.

Great. And then just the structure of the Summit Midstream Partners LLC, is that set up as a partnership or a C corp?

It's an LLC; it's a partnership.

It's a partnership? Got it. All right.

Yes, it's a pass-through.

Okay, great. And then just, I guess, going to some clarifications on your reportable segment EBITDA. So that number, the five-segment EBITDA number, that includes MVC payments?

Helen, it's Matt Harrison. It does; yes.

Okay. So essentially Piceance and Barnett, inclusive of the MVC payment, it looks like there was on the -- like, a $2 million to $4 million year-over-EBITDA decline there. Is that correct?

That's right.

Okay, got it. And then the other question was CapEx. Could you just give us an update on what -- how much CapEx you have remaining to spend, given the projects you have announced and you are executing right now?

Yes. Helen, it's Steve. We are at about $90 million approximately through the third quarter on total CapEx growth of about $83 million. And we expect to be right in the middle -- our guidance was $116 million to $136 million. We expect to be right in the middle of that for the year, around $120 million -- call it $120 million to $125 million of total CapEx.

Okay. So you seem to have maybe another $30 million or so remaining.

That's a good estimate, yes, $30 million-ish.

And then do you have anything for 2016 that's committed to be spent?

We do, yes, particularly in the Bakken for our expansion projects there. And we will be coming out with 2016 guidance, as we mentioned, in early first quarter of next year, so -- and including CapEx guidance. But we do -- we are still executing on expansion projects in the Bakken for Whiting and Savannah.

Okay, great. Thank you very much.

Praneeth Satish, Wells Fargo.

Just a couple quick questions. I guess you touched on it, but I was hoping you could maybe elaborate on just any insight into why Energy Capital Partners is electing to potentially monetize their interest right now, I guess, in this kind of commodity environment.

I would point you to their piece of our press release. I don't want to speak for them because we are not them. But they have been part of us since formation. They are six years in. We are in their second fund. They obviously have raised their third fund earlier this year. But outside of that, I don't think I'm probably the right person to comment on exactly what they're thinking as it relates to this commodity price environment.

Okay, fair enough. And then just in terms of spending, CapEx spending at Summit Investments, has that slowed at all? I think in the last presentation there's a slide there that says that the target is $665 million of investment targeted for 2016 to 2019. Is that still the expectation or has that changed at all?

I'll let Matt handle that one.

Yes, this is Matt. That expectation has stayed relatively consistent. I would say that timing is moving around maybe between years a little bit as we get a little bit more execution in the dry gas window. But the total CapEx dollars from our last presentation have remained relatively consistent.

Got it. And then just last question for me -- relative to some peers, there's a lot of OpEx savings that's going on in this type of environment. I was just wondering if you could give us an update I guess in terms of where -- how much OpEx savings Summit has realized to date and whether there is the ability there to clamp down on that a little bit more in the coming quarters.

Yes, good question. If you looked at -- I'll give you OpEx and G&A, actually. So if you look at our what we call direct OpEx, so this is our controllable OpEx, we obviously have some pass-throughs like power and things like that in our OpEx line. But our controllable OpEx from third quarter of last year to third quarter this year is down about 11%. And our G&A is down by about 14% year over year.

So I think, like others, everyone is focused on what they can control in this environment, and we are no different there and think we are doing a pretty good job there as well.

Okay. And then just going forward, is there the ability to drive that down any further? Or is this most of the meat on the bone has been taken off at this point?

Yes, I think it will be around the edges going forward more so. We are, like others, more of a fixed-cost business. So I wouldn't say that there's not incremental savings. I would say, though, we have driven a lot out of it already.

Thank you.

Tristan Richardson, SunTrust.

Just wanted to say thank you for providing the commentary on ECP. The additional clarity is really helpful. And then, I guess, just towards your optimism for the first half of next year, maybe a silver lining of deferral was it gives you a little bit of added visibility. But, I guess, just directionally for us, when you talk about 18 DUCs in the Barnett in the first half of 2016, I guess just year over year how should we think about new wells brought to production in the first half of 2015?

Yes. Let's clarify maybe in the Barnett. We have 28 DUCs in the Barnett overall, 11 of which were recently drilled. And we have very good -- part of our optimism, large part of our optimism, is on the clarity around our DUCs across the operating platform, the Barnett in particular, and plans and communications we have with our customers there to bring those DUCs online.

The Barnett in particular is a little bit different scenario because the delay in completions there from one of our large customers was not really price related. It was more operationally related on their end. And so we have fairly good clarity, we believe, in those wells coming online at the end of this year in the fourth quarter and then in early 2016 as well, too. So that's what gives us a little bit of optimism, particularly around our Barnett system.

In the Marcellus, different situation -- still a large amount of DUCs there, 30 or so, 32, I think, upstream of our system. That one was price related. I think Antero has been pretty clear on that. There is a large -- there is an interstate takeaway option being completed here in the fourth quarter, supposed to be completed in the fourth quarter, that they have relayed to us and a lot of other folks. That's when they plan on resuming completion activities, once that is up and going.

So a large portion of our optimism really across the platform the next two or three quarters is simply related to what has already been drilled in our system. It's not necessarily related to an extremely bullish drilling profile here in the fourth quarter and the first quarter. It's really what has already been drilled and coming on -- and expected to come online.

Right, that makes sense. And then, I guess, just in terms of the 50 new wells from Ursa in 2016, could you compare that to what their activity has been this year, if you can?

Yes. Give us a second, we will tell you what is completed. We did an expansion -- an incremental expansion project for them executed in the third quarter, where we are putting some CapEx in the ground to expand our system. This is -- for those that know our assets well, this is what we call our rifle area, which is actually at capacity. And so we are expanding that area. They are going to have a drilling rig move back in there, I think, this quarter. And then they have committed a certain amount of volumes. We had a pretty significant step-up in our minimum volume commitments from them.

So in 2015 they basically ran a rig the balance of -- for most of 2015, or have run a rig for most of 2015. And they will complete, I don't know, roughly, what, 25 or so wells this year. And so that activity is going to ramp up here into this year and in the first of next under the new deal we did with them.

That's great. That's helpful. And then just last one for me -- in terms of Summit Utica, the dry gas serving XTO, the volume increase you noted there in the third quarter -- was that mainly driven by their activity? I know you also commissioned some new infrastructure during the quarter. Could you talk about maybe what drove the volume improvement there?

Yes, it's mainly their activity. We were somewhat limited during the third quarter to downstream capacity coming online, quite frankly, and they were limited by that downstream capacity coming online, too. So, that line came online late third quarter. And so we brought two big beehive facilities online during the quarter, 300 million of capacity. And we are expecting a pretty significant ramp-up over the next 12 months on that system.

That's great. I appreciate --

So what you are seeing in the third-quarter numbers is really a back half of the quarter volume impact, not much of the third quarter, really the last month or so.

Got you. Okay. Thank you guys very much.

Jerren Holder, Goldman Sachs.

Just wanted to get better understanding of the minimum volume commitments heading into 2016. So in the hypothetical situation, if volumes were flat across your entire system, should we expect EBITDA to be flat, down or up, just given that certain systems may be stepping up their indices or stepping down? How should we think about that?

This is Matt, Jerren. As you think about the Piceance and you think about Mountaineer and others, MVCs are relatively flat. Where the MVCs will step down, actually, will be on our Bison system. The Bison system in a flat-volume scenario would be impacted to the downside from an EBITDA standpoint.

Okay, got it. That's it for me. Thank you.

Jeff Birnbaum, Wunderlich.

You mentioned or ECP mentioned in their release that -- I guess they have assured you that they are not considering a transaction that would separate SMLP from the development assets of the GP. Is there any color you can give just on whether or not it's on the table that they could sell to a strategic buyer that has its own MLP?

Yes, I would -- we're not going to comment too much further on it. I would say their quote in their comments on not decoupling the assets of the GP from the MLP took into account, I believe, their views on strategic buyers as well.

Okay, that's helpful. Thank you. And just given some of your -- assuming there is no sale, given some of your prior comments about pacing of 2016 drops on your last conference quarterly call, do you expect drops would probably start closer to the beginning of next year, just given some of the progress as well on the dry Utica assets?

Yes. I think I would just caution that we are going to come out in early 2016 with guidance including drop-down guidance and financial guidance for 2016. I would rather wait until then, until we get through this strategic review as well. Obviously, that's impactful. So anything I give you now is just not worth -- we got to wait and get through these things. We will be out in early 2016.

Okay, that's totally fine. And then just in the Williston, how much do you know, at least on an EBITDA basis, if the work on the Thomas Lateral impacted results there? And do you know what volumes have been since that pipeline was recommissioned?

Yes. It was -- I would say that the financial impact is a few hundred thousand dollars worth of EBITDA. The line has been placed back into service. It was producing 2,000 to 3,000 barrels a day -- or moving 2,000 to 3,000 barrels a day, taken out of service and then back to those levels currently.

Thanks.

Charles Marshall, Capital One Securities.

I just had one quick question here. Just in terms of -- you said earlier on the call that you don't have any plans to issue equity next year. Given where your net debt to EBITDA leverage ratio was a bit north of your target, how do you see that evolving over the next six to 12 months, understanding that there's some noise around potential drop-downs? But I guess with your current asset base, can you guide us in terms of how you think that will trend over the next six to 12 months?

Yes, sure, Charles. This is Matt Harrison. We would expect that number to trend up a little bit in the fourth quarter. And this is a result of completing the Stampede Lateral as well as we are continuing to project for minimum volume commitment payments, the largest from Encana and EOG, which then we will receive in the first quarter of 2016. But barring any drop-down activity or anything like that, we would expect that that leverage would stay consistent in the 4.5 to maybe a little bit higher in 2016.

Okay, got it. And one last one for me -- in terms of your CapEx guidance, has there been any shift relative to growth in maintenance? I think you said total CapEx had basically stayed the same. But has there been any shift between the buckets?

Yes. I think it's all within our range. But maintenance is probably in the low end of our range. And that's really just us being more efficient in this kind of environment on what we spend. So it's a review of all CapEx. So maintenance is on the low end. I'd say growth is probably right smack dab in the middle.

Got it. That's it for me. Thank you.

Nathan Judge, Janney Montgomery.

I just wanted to ask if there were any limitations from ECP as far as how much you could take in shares and/or any exposure, I guess, to SMLP.

Yes. First, I'd tell you it's really Summit Investments, not all the way up to ECP. And Summit Investments is fairly low levered, pretty significant financial flexibility as well. It obviously owns 30 million units already of the MLP. And so there's a lot of things that could do and (inaudible) as well, too. So there's a lot of levers to pull on Summit Investments assisting SMLP in executing the drop-down plan. So there's a lot of flexibility in Summit Investments right now.

And just as it relates to the strategic decisions and the alternatives, have you had discussions with ECP regarding a ROFO or anything of that nature?

I would say in this process we've had discussions on a lot of different things with them. So I think I'll leave it at that. Yes, there's been a lot of discussions around a lot of different factors and things that -- support that they could look at doing.

Okay. Thank you for the color.

Andy Gupta, HITE Hedge Asset.

This is Matt Niblack. Thanks a bunch for all the clarity that you are able to provide on the process upstairs. I know it's not everything everyone is looking for, but a statement of any kind is certainly appreciated.

The first question is around the Piceance Basin. Are you having any rumblings from your producer customers about wanting to renegotiate, given how far you are below your MVC for that basin as a whole?

Yes. I'd say no, not really. What we've had conversations with some customers on is looking at expansions in other areas of the country for them, trying to use those MVCs for both them and us as a positive factor in looking at other areas, quid pro quo, so to speak. But nothing on just rate reductions. I don't think that -- that doesn't make a lot of sense for us either. So something like that has to make sense for us where we are garnering other business as well, too. And in fact, I tell you this deal we just did in the Piceance significantly increased our MVC's with Ursa.

Right, right. Certainly a good sign. And in looking forward to the result of the strategic review, you said at the beginning of the call that equity wouldn't be required in 2016. But I think I was -- to clarify, that was for your base business. And then related to that, if you do pursue particularly an accelerated drop-down schedule or even a drop-down schedule in line with your original guidance, would you issue public equity at the current price, or would that inherently involve some form of a private equity with either the sponsor or another party?

Yes. I'd say what I answered it a couple questions ago. I would -- we are going to give detailed guidance around our drop-down plans in early 2016 and our financial guidance for 2016. And I think when we give detailed drop-down plans, I think we'll be able to comment further on how we plan to finance that strategy as well, too.

And on your first question, yes, it's related to the base business.

Got it. And then lastly, just looking at the tremendous value of that Utica asset, is it likely as you've at least hinted to in the past that some slice of that would be the first drop-down in any likely strategy into 2016?

I think -- yes, I think 85%-plus of the asset base we have at Summit Investments is the Utica. So on just what's up there and the scale of what's up there, I think it makes sense that some of that is going to make its way down to the MLP in the near term. So that's just number one.

Number two, I think we have been pretty clear prior to the strategic review process at the Utica assets we're setting up very nicely for 2016, just given their development profile. And, I think, given some of our commentary today around where those assets are from a volume standpoint and where they are expected to be, I don't think -- nothing has changed on that. In fact, we'd argue it has probably accelerated the development of assets.

Great. Well, certainly we would look forward to part of that being in the MLP. I think that would go a long way toward soothing some of the investor concern that has been reflected in the shares recently. But thank you for taking the questions.

Jeff Birnbaum, Wunderlich.

I wanted to circle back to one other comment from earlier. Broadly speaking, I think you mentioned that the way we should think about forward growth in this environment certainly is balancing distribution growth relative to coverage. So I was wondering whether there are any changes to how you have been thinking about distribution coverage on an organic basis or whether you think that would change if some of the drop-downs are executed next year and going forward. Just any color there would be helpful.

I'll take it first and Matt can jump in. I think, first, we had guided, I think, pretty clearly that coverage was going to dip down in the back half of this year. We gave that guidance pretty early in the year. And so this isn't a surprise to us and expected. I think what goes into our thought process and the Board's thought process around growth is also our view on the forward outlook on the business. And I think our cautionary comments are related around are we going to -- will we see the completions like we believe we will see the completions in our DUC inventory today which will drive cash flow.

And then the final factor, obviously, is our drop-down strategy because that impacts our financial profile and our growth overall. And so it has to be considered when we think about distribution growth. So, getting more clarity around that and how we're going to do that also will give us more clarity around this fourth-quarter distribution in the balance of 2016 distribution growth.

Did you have anything, Matt?

That's fine.

For the first time ever, Matt had nothing to add to, actually, my comments.

So, the target coverage for going forward would still be something, I assume, along the 1-1 times?

Yes, I think 1.05 to 1.1 is where we would like to pin it in this environment. It is going to bounce around a little bit, given the environment. We are cognizant of that. But long term, yes, absolutely that's (inaudible). Long term, we are not going to borrow to grow our distribution.

Understood. Thanks.

Thank you. I am showing no further questions at this time.

Okay. Thanks, everyone. And obviously, please follow up, as usual, with our team if you have additional questions.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.