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Summit Midstream Partners, LP Reports Third Quarter 2019 Financial Results

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THE WOODLANDS, Texas, Nov. 8, 2019 /PRNewswire/ -- Summit Midstream Partners, LP (NYSE:SMLP) announced today its financial and operating results for the three months ended September 30, 2019, including adjusted EBITDA of $72.0 million, DCF of $41.7 million, and a quarterly distribution coverage ratio of 1.75x.  SMLP reported a net loss of $10.6 million in the quarter, which included a $16.2 million non-cash expense related to the impairment of goodwill on the Mountaineer Midstream system, due to a more tempered near-term outlook for the Marcellus Shale reportable segment.  Net loss, adjusted EBITDA and DCF were negatively impacted by approximately $3.9 million of extraordinary remediation expenses and operational downtime in the Williston Basin segment during the quarter. 

Summit Midstream Partners Logo. (PRNewsFoto/Summit Midstream Partners)

Heath Deneke, President and Chief Executive Officer, commented, "Excluding the remediation expenses and operational issues in the Williston Basin segment, third quarter of 2019 results were in line with expectations and reflected volumetric growth and drilling activity consistent with our expectations from last quarter.  Volumes increased sequentially across six of our eight reportable segments, and we expect this trend to continue across many of our gathering and processing systems through the end of the year, with another 40 new well connections scheduled in the fourth quarter.  Taking into account the Williston Basin issues experienced in the third quarter, we now expect full year 2019 adjusted EBITDA to be around $290 million."

"With the completion of our 60 MMcf/d DJ Basin processing plant and compression expansions in the Permian Basin, capital expenditures began to wind down in the third quarter and are expected to decline further in the fourth quarter of 2019.  We will remain disciplined with respect to future capital expenditures, which will be primarily concentrated on the Double E Pipeline project and accretive expansions of our existing systems in our Core Focus Areas.  We continue to advance our financing plans for our equity interest in Double E, which we intend to be credit neutral to Summit.  We are currently targeting a financing structure that requires no further cash outlays or payments by us during the construction period, and which shifts a substantial majority of our Double E capital commitments to third parties beginning in the first quarter of 2020.  Excluding Double E, we estimate that our 2020 capital program will be less than $75 million."

"Additionally, in the third quarter, we kicked off an important internal initiative to transform our cost structure, enhance margins and improve our competitive position in response to the ongoing challenge of weak market conditions.  Based on preliminary assessments, we are targeting a reduction of at least $10 million of annual operating and administrative expenses in 2020 and up to $20 million of annual run rate expenses thereafter, while maintaining our commitment to providing safe and reliable operations for our customers. Our committed focus on cost efficiency and capital discipline is an important part of our overall plan to reduce leverage and improve our financial flexibility."             

"Lastly, today's announcement of an amendment to the DPPO represents an important step forward for the company and all of our stakeholders.  The amendment reduces the remaining obligation by 40% to $180.75 million, and the extension of the final payment date to January 2022 provides SMLP with additional time and flexibility to further strengthen the balance sheet and develop an optimal solution to retire the DPPO in its entirety.  To that end, we will continue to pursue options that include, but are not limited to, raising proceeds from asset divestitures or the formation of joint ventures in our Legacy Areas and Core Focus Areas.  While there can be no assurances that these options will lead to a transaction or other course of action, the SMLP management team, its Board of Directors, and our sponsor, Energy Capital Partners, are fully committed to pursuing every opportunity to strengthen the company and maximize unitholder value."

DPPO Reduction & Extension
In November 2019, SMLP further amended the Contribution Agreement associated with the 2016 Drop Down (the "Amendment") to account for a prepayment by the Partnership, on or before November 15, 2019, of (i) $51.75 million of cash and (ii) 10,714,285 SMLP common units.  Following the prepayment, the DPPO will be reduced by $122.75 million, to $180.75 million.  Also, the Amendment eliminates the near-term obligation for SMLP to fund a $151.75 million DPPO payment by June 30, 2020 and another $151.75 million payment by December 31, 2020 and extends the date by which SMLP is required to make the final DPPO payment, in full, to January 15, 2022.  SMLP will have the option to make interim payments in advance of January 15, 2022; however, there is no obligation to do so.  At the discretion of the board of directors of SMLP's general partner, future payments of the DPPO can be made in either cash or SMLP common units, or a combination thereof, and interest will accrue (and be payable quarterly in cash) at a rate of 8% per annum on any portion of the DPPO that remains unpaid after March 31, 2020.

The Amendment was unanimously approved by the Board of Directors of SMLP's General Partner, including the conflicts committee, which consists entirely of independent directors.  The conflicts committee engaged Tudor, Pickering, Holt & Co. as its independent financial advisor and Akin Gump Strauss Hauer & Feld, LLP as its legal advisor.

Quarterly Business Highlights
In the third quarter of 2019, SMLP's average daily natural gas throughput for its operated systems increased 1.9% over the second quarter of 2019 to 1,394 MMcf/d, and liquids volumes increased 11.6% over the second quarter of 2019 to 105.2 Mbbl/d.  Third quarter gross average daily natural gas throughput for Ohio Gathering increased 9.0% over the second quarter of 2019 to 777 MMcf/d.  Our customers commissioned 38 natural gas wells and 39 liquids wells upstream of our operated systems during the third quarter, and our Ohio Gathering customers connected 13 wells during the period.  SMLP's customers currently maintain more than 70 DUCs in inventory upstream of our systems.

Core Focus Areas:
Our Core Focus Areas, which include our Utica Shale, Ohio Gathering, Williston Basin, DJ Basin, and Permian Basin reportable segments, are located in production basins in which we expect to experience relatively higher long-term growth, driven by our customers' ability to generate more favorable returns and support sustained drilling and completion activity in varying commodity price environments. 

  • Core Focus Areas generated sequential quarterly adjusted EBITDA growth of 9.9% to $38.9 million, with four of the five segments higher than the second quarter of 2019 and the prior-year period
  • Utica Shale segment adjusted EBITDA of $7.9 million, an 18.4% increase over the prior quarter, was driven by 248 MMcf/d of high margin volumes gathered from pad sites directly connected to the gathering system; volume growth was driven by the completion of four new wells at the end of the second quarter
  • The Utica Shale segment is benefitting from a consistent level of drilling and completion activity, including two new wells that were commissioned at the beginning of the fourth quarter, and a new rig that was mobilized in August 2019 to drill a 5-well pad site. This pad site is expected to commence initial production in the second quarter of 2020 with flow rates in excess of 150 MMcf/d, which is approximately 60% of our third quarter 2019 pad level volumes
  • Ohio Gathering segment adjusted EBITDA totaled $10.4 million and volume throughput increased 9.0% over the second quarter of 2019 as a result of 13 new wells commissioned in the quarter, including five wells in the rich gas window of the play
  • Williston Basin volume throughput averaged 105.2 Mbbl/d for the third quarter, which was attributable to 39 new well completions behind the Polar and Divide system; these new wells facilitated volume throughput in excess of 115.0 Mbbl/d in September 2019, a new monthly record for SMLP
  • Williston Basin segment adjusted EBITDA totaled $13.8 million in the third quarter of 2019, which was negatively affected by approximately $2.0 million of extraordinary remediation expenses and $1.9 million associated with an operational disruption on the Bison Midstream system. The disruption began at the end of the second quarter of 2019, and all systems were fully restored in late August 2019
  • The Williston Basin segment maintains strong momentum heading into the fourth quarter of 2019, with exit-rate liquids throughput in September exceeding 115.0 Mbbl/d, two drilling rigs currently working, and 25 DUCs upstream of the Polar & Divide system
  • DJ Basin segment adjusted EBITDA totaled $6.6 million in the third quarter of 2019, and represented a growth rate of 133% over the second quarter of 2019 as a result of a 65.0% increase in volume throughput and the ability to charge monthly demand payments, both of which resulted from the commissioning of the new 60 MMcf/d processing facility in June 2019
  • SMLP's customers are currently operating two rigs upstream of the Niobrara G&P system, which is expected to grow volumes and increase plant utilization over the balance of the year
  • The Permian Basin segment generated $0.2 million of segment adjusted EBITDA in the third quarter of 2019, a $0.9 million increase from the prior quarter, primarily attributable to a 17.6% increase in volume throughput, and continued improvement in our operating efficiency, which enabled a $0.4 million decrease in operating expenses relative to the prior quarter
  • We expect continued momentum for the Permian Basin segment through the balance of 2019, driven by one active rig and 17 DUCs upstream of the Lane G&P system
  • Double E filed its section 7(c) application with the Federal Energy Regulatory Commission ("FERC") in July 2019, and in September 2019 received notice of FERC's intention to issue an Environmental Assessment related to the project in March 2020; the Double E project continues to move forward on schedule and on budget

Legacy Areas:
Our Legacy Areas, which include our Piceance Basin, Barnett Shale and Marcellus Shale reportable segments, are located in production basins in which we expect our gathering systems to experience relatively lower long-term growth and to attract a lower level of capital expenditures.

  • Legacy Areas generated third quarter of 2019 free cash flow (segment adjusted EBITDA less capex) of $38.9 million, based on combined segment adjusted EBITDA of $39.9 million and combined capital expenditures of $1.0 million
  • Barnett Shale volume throughput of 247 MMcf/d benefited from three new wells commissioned behind the DFW Midstream system during the third quarter
  • Marcellus Shale volume grew modestly relative to the second quarter of 2019, due to the commissioning of five new wells late in the quarter, which contributed to September 2019 average volumes of approximately 385 MMcf/d

The following table presents average daily throughput by reportable segment:



Three months ended
September
 30,



Nine months ended
September
 30,



2019



2018



2019



2018

Average daily throughput (MMcf/d):
















Utica Shale



290




357




279




376

Williston Basin (1)



9




19




12




18

DJ Basin



33




18




25




16

Permian Basin



20







17




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