Summit Midstream Partners Reports Third Quarter 2020 Financial and Operating Results


Summit Midstream Partners, LP (NYSE: SMLP) announced today its financial and operating results for the three months ended September 30, 2020, including net income of $25.6 million, adjusted EBITDA of $59.8 million and DCF of $37.6 million. Net income included a $24.7 million gain from early extinguishment of debt due to SMLP's open market repurchases and public tender offers for its senior unsecured notes, at discounts to par value. Operated natural gas volume throughput averaged 1,392 million cubic feet per day ("MMcf/d") and liquids volume throughput averaged 69.0 thousand barrels per day ("Mbbl/d") for the third quarter of 2020. Operated natural gas volumes were relatively flat with the second quarter of 2020, which was impacted by an aggregate volume increase of 64 MMcf/d from the Marcellus Shale and DJ Basin segments relative to second quarter volumes, partially offset by a 15.4% decrease in Utica Shale segment volume, primarily due to a five-well pad site, representing more than 150 MMcf/d, that was temporarily shut-in due to low commodity prices from mid-June through mid-August. Quarterly liquids volume throughput decreased by 9.2% from the second quarter of 2020, primarily due to natural production declines, the shut-in of approximately 5 Mbbl/d of liquids throughput across our systems due to low commodity prices and the continued deferral of drilling and completion activities by certain customers in the Williston Basin segment.

Heath Deneke, President, Chief Executive Officer and Chairman, commented, "Summit generated $59.8 million of adjusted EBITDA during the third quarter, which was slightly above our expectations in August. Our results improved throughout the third quarter as customers continued to return previously shut-in production to service in large part due to strengthening of natural gas prices. Given that most of the temporary production shut-ins that impacted our financial results in the second and third quarters have been restored or are in the process of being restored, we continue to expect full-year 2020 adjusted EBITDA to be within our $250 million to $260 million guidance range."

"We continue to make excellent progress advancing the Double E project while locking in substantial savings relative to the original development budget. Although the project did not receive FERC approval in the third quarter of 2020 as originally anticipated, we were pleased that FERC issued the 7(c) certificate authorizing the project in October. This approval represents a significant milestone for the project and enables us to advance plans to secure third-party financing to fund the vast majority, if not all, of our remaining Double E capital expenditures. We expect to have third-party financing in place concurrent with receipt of FERC's notice to proceed with construction, which is expected to be obtained in the first quarter of 2021. Given the success we've had in locking in capital savings relative to budget, the total estimated cost to complete Double E is now expected to come in under $430 million, gross, which represents an approximate 15% reduction relative to the original capital budget. As a result, SMLP's 70% share of development capital is now estimated to be approximately $300 million, of which, approximately $175 million remains to be spent as of September 30, 2020."

"Due to the delay in receiving FERC approval on the Double E project and the associated impact to the timing of our third-party financing plans, SMLP now expects to directly fund an incremental $10 million to $20 million of Double E capital in 2020 beyond what was previously assumed in our capital guidance for the year. As a result, we are revising SMLP's 2020 capital expenditure guidance to $55 million to $65 million."

"We also continued to make significant progress on our liability management strategy in the third quarter of 2020, completing and announcing several transactions, consistent with our primary objectives to reduce leverage, simplify the balance sheet and create long-term value for stakeholders across our capital structure. Since closing of the GP Buy-In Transaction in May, including the October 2020 privately negotiated transaction to repurchase $95.6 million of our 2025 senior notes at a substantial discount to par value, we have repurchased a total of $306.5 million face value of our aggregate senior notes and reduced net indebtedness by more than $150 million relative to the end of 2019. Additionally, we exchanged 62,816 Series A Preferred Units for approximately 12.3 million SMLP common units during 3Q 2020, reducing the face value of SMLP's aggregate Series A Preferred Units by approximately $62.8 million at an implied discount of 84% based on SMLP's common unit trading price at closing. Furthermore, during the third quarter, we executed a transaction support agreement to retire the $155.2 million SMP Holdings Term Loan through a settlement with the Term Loan lenders. Upon closing of the TL Restructuring, we plan to make a $26.5 million cash payment to SMP Holdings, representing a full settlement of the $180.75 million DPPO, and will release the 34.6 million SMLP common units that were previously pledged as collateral to Term Loan lenders. In exchange, the lenders will forgive the full amount of the $155.2 million Term Loan and the GP interest will be released from the collateral package. The TL Restructuring has garnered the support and consent from 100% of the lenders and is expected to close in the fourth quarter of 2020. Together with the Series A Preferred Equity Exchange, the senior note repurchases and the full settlement of the DPPO, SMLP has eliminated approximately $550.1 million of its fixed capital obligations since closing the GP Buy-In Transaction. These liability management transactions have been highly accretive to SMLP's equity valuation given the substantial discounts captured and I believe that SMLP is far better situated for long-term success as a result of these initiatives."

Summary of Selected Balance Sheet Items Impacted by SMLP's Liability Management Initiatives in 2020The table below summarizes the par value of key selected SMLP balance sheet line items that have been, or are expected to be impacted by SMLP's liability management initiatives in 2020. Current par value is shown pro forma as of November 5, 2020 and includes expected impacts from the SMP Holdings Term Loan Restructuring transaction, which was announced in September 2020 and is expected to close in the fourth quarter of 2020.

Third Quarter 2020 Business HighlightsIn the third quarter of 2020, SMLP's average daily natural gas throughput for its operated systems increased 0.1% relative to the second quarter of 2020, to 1,392 MMcf/d, and liquids volumes decreased 9.2% relative to the second quarter of 2020, to 69 Mbbl/d. SMLP's customers had approximately 21 DUCs in inventory and 18 wells that had been completed but not turned-in-line upstream of its systems as of September 30, 2020.

Core Focus Areas:

  • Core Focus Areas generated combined quarterly segment adjusted EBITDA of $32.0 million and had combined capital expenditures of $6.3 million.
  • Utica Shale segment adjusted EBITDA totaled $7.5 million, a $3.2 million decrease from the second quarter of 2020, which was driven by a 15.4% decrease in volume throughput. Volume throughput was lower in the third quarter of 2020 due to the shut-in of a five-well pad site through mid-August that averaged more than 150 MMcf/d once back online, deferrals of new well connections and natural production declines. A total of 10 wells were connected in the Utica Shale segment during the quarter, of which seven wells were turned-in-line upstream of the TPL-7 Connector pipeline. We do not anticipate any new well connections for the remainder of the year, but we do expect additional activity in the first half of 2021 as a result of a previously announced gathering agreement amendment to incentivize accelerated drilling behind our SMU system.
  • Ohio Gathering segment adjusted EBITDA totaled $7.1 million, a 5.1% decrease from the second quarter of 2020. Lower segment adjusted EBITDA was driven by a 5.2% decrease in volume throughput due to production shut-ins, which accounted for approximately 139 MMcf/d of gross volumes for the quarter, partially offset by 15 new wells that were connected, of which 10 wells were turned-in-line in September; as a result of our one-month lag in reporting for Ohio Gathering, these 10 September wells were not included in our third quarter operating or financial results.
  • Williston Basin segment adjusted EBITDA totaled $11.7 million in the third quarter of 2020, an 8.0% decrease from the second quarter of 2020, primarily due to a 9.2% decrease in liquids volume throughput to 69 Mbbl/d. This volume throughput decrease was driven largely by natural production declines and impacted by production shut-ins of approximately 5 Mbbl/d for the quarter. In September, two of our Williston Basin customers emerged from bankruptcy proceedings and at the end of the third quarter, there were approximately 6 DUCs in inventory and 8 wells that have been completed, but not yet turned to production behind our Williston Basin systems.
  • DJ Basin segment adjusted EBITDA totaled $4.8 million in the third quarter of 2020, a 9.8% increase from the second quarter of 2020, due to a 35.0% quarter-over-quarter increase in total throughput to 27 MMcf/d. The volume throughput increase was primarily driven by shut-in wells coming back online and nine new wells connected behind the DJ Basin system in the quarter. As of September 30, 2020, our customers had 10 completed wells that had not yet been turned-in-line behind our DJ Basin system; however, four of those wells came online in October 2020 and the remaining six are expected to be online by year end.
  • Permian Basin segment adjusted EBITDA totaled $0.9 million in the third quarter of 2020, a decrease of approximately 51.1% relative to the prior quarter primarily due decreased margins on natural gas and NGL sales, higher operating expenses and change in customer volume mix. The 6.3% increase in volume throughput was largely attributable to having a full quarter of throughput from a customer who signed a contract extension in May. Our customers have two DUCs in inventory behind the Permian Basin system, but we do not expect them to be turned-in-line until 2021.

Legacy Areas:

  • Legacy Areas generated $34.7 million of combined segment adjusted EBITDA in the third quarter of 2020 and had combined capital expenditures of $1.3 million.
  • Piceance Basin segment adjusted EBITDA of $21.5 million decreased by $0.2 million from the second quarter of 2020 due to lower volume throughput of 1.6%, which was primarily driven by the impact of natural production declines.
  • Barnett Shale segment adjusted EBITDA decreased by $1.3 million from the second quarter of 2020 to $7.2 million, primarily due to decreased gas sales and margin mix due to recent contract amendments. Throughput volumes increased by 2.5% primarily due to workovers and recompletions of existing wells behind the DFW Midstream system.
  • Marcellus Shale segment adjusted EBITDA increased by 23.2% compared to the second quarter of 2020, to $6.0 million, due to a 16.8 % increase in volume throughput to 396 MMcf/d. Our anchor customer connected nine wells in July, which represented the primary driver of increased performance. There were nine DUCs in inventory behind our Marcellus Shale infrastructure at the end of the third quarter, which we do not expect to be turned-in-line until the first half of 2021.

Capital ExpendituresCapital expenditures totaled $7.9 million in the third quarter of 2020, a decrease of 10.8% compared to the second quarter of 2020, which included maintenance capital expenditures of $3.5 million. Capital expenditures in the third quarter of 2020 were primarily related to growth projects in our DJ Basin segment.

Capital & LiquidityAs of September 30, 2020, SMLP had $437.4 million of undrawn commitments under its $1.25 billion revolving credit facility, after accounting for a $4.1 million issued but undrawn letter of credit. Subject to covenant limits, our available borrowing capacity at September 30, 2020 totaled approximately $172 million.

Based upon the terms of SMLP's revolving credit facility and total outstanding debt, net of cash, of $1.35 billion (inclusive of $589.1 million of senior unsecured notes), SMLP's total leverage ratio and senior secured leverage ratio (as defined in the credit agreement) as of September 30, 2020, were 4.87 to 1.0 and 2.74 to 1.0, respectively, relative to maximum threshold limits of 5.50 to 1.0 and 3.75 to 1.0.

Double E UpdateDuring the third quarter of 2020, SMLP made cash investments totaling $11.2 million with respect to its 70% equity investment in Double E. The estimated cost to complete the Double E Pipeline Project has decreased by approximately 15% relative to original development budget, and as such, SMLP's 70% share of capital costs is now approximately $300 million, of which approximately $125 million has been funded as of September 30, 2020. As previously reported, on October 15, 2020, Double E received Federal Energy Regulatory Commission ("FERC") approval of its application to construct and operate the Double E Pipeline Project pursuant to Section 7(c) of the Natural Gas Act. SMLP is in the process of finalizing third-party financing for its remaining Double E capital obligations and expects to secure this financing concurrently with FERC's notice to proceed with construction, which is anticipated in the first quarter of 2021. SMLP plans to directly fund its Double E capital obligations until third-party financing can be obtained. The estimated in-service date for Double E has been extended to the fourth quarter of 2021.

MVC Shortfall PaymentsSMLP billed its customers $12.9 million in the third quarter of 2020 related to MVC shortfalls. For those customers that do not have MVC shortfall credit banking mechanisms in their gathering agreements, the MVC shortfall payments are accounted for as gathering revenue in the period in which they are earned. In the third quarter of 2020, SMLP recognized $12.9 million of gathering revenue associated with MVC shortfall payments. SMLP also recognized $2.3 million of adjustments to MVC shortfall payments in the third quarter of 2020 related to shortfall payment adjustments from customers in the Williston Basin segment and the Piceance Basin segment. SMLP's MVC shortfall payment mechanisms contributed $15.2 million of total adjusted EBITDA in the third quarter of 2020.

Quarterly Distribution UpdateThe board of directors of SMLP's general partner continues to suspend cash distributions payable on its common units and on its 9.50% Series A fixed-to-floating rate cumulative redeemable perpetual preferred units for the period ended September 30, 2020. Unpaid distributions on the preferred units will continue to accrue.

Previously Announced Reverse Unit SplitOn October 30, 2020, SMLP announced a 1-for-15 reverse unit split on its common units. Pursuant to the reverse unit split, common unitholders will receive one common unit for every 15 common units owned at the close of business on November 9, 2020. The split will take effect after markets close on Monday, November 9, 2020, and the common units will trade on a split-adjusted basis beginning on Tuesday, November 10, 2020.

About Summit Midstream Partners, LP

SMLP is a value-driven limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. SMLP provides natural gas, crude oil and produced water gathering, processing and transportation services pursuant to primarily long-term, fee-based agreements with customers and counterparties in six unconventional resource basins: (i) the Appalachian Basin, which includes the Utica and Marcellus shale formations in Ohio and West Virginia; (ii) the Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota; (iii) the Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado and Wyoming; (iv) the Permian Basin, which includes the Bone Spring and Wolfcamp formations in New Mexico; (v) the Fort Worth Basin, which includes the Barnett Shale formation in Texas; and (vi) the Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado. SMLP has an equity investment in Double E Pipeline, LLC, which is developing natural gas transmission infrastructure that will provide transportation service from multiple receipt points in the Delaware Basin to various delivery points in and around the Waha Hub in Texas. SMLP also has an equity investment in Ohio Gathering, which operates extensive natural gas gathering and condensate stabilization infrastructure in the Utica Shale in Ohio. SMLP is headquartered in Houston, Texas.

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