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Edited Transcript of SMLP earnings conference call or presentation 9-Aug-19 2:00pm GMT

Q2 2019 Summit Midstream Partners LP Earnings Call

Dallas, Texas Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Summit Midstream Partners LP earnings conference call or presentation Friday, August 9, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blake Motley

Summit Midstream Partners, LP - VP of Strategy & Head of IR of Summit Midstream GP, LLC

* Brad N. Graves

Summit Midstream Partners, LP - Executive VP & Chief Commercial Officer of Summit Midstream GP, LLC

* Leonard Wayne Mallett

Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC

* Marc David Stratton

Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC

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Conference Call Participants

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* Elvira Scotto

RBC Capital Markets, LLC, Research Division - Director

* James Eugene Carreker

U.S. Capital Advisors LLC, Research Division - Executive Director

* Kyle May

Capital One Securities, Inc., Research Division - Associate

* Tristan James Richardson

SunTrust Robinson Humphrey, Inc., Research Division - VP

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Presentation

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Operator [1]

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Good morning, and welcome to the Second Quarter 2019 Summit Midstream Partners LP Earnings Conference Call. My name is Brandon, and I'll be your operator for today. (Operator Instructions) Please note, this conference is being recorded. And I will now turn it over to Blake Motley. You may begin, sir.

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Blake Motley, Summit Midstream Partners, LP - VP of Strategy & Head of IR of Summit Midstream GP, LLC [2]

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Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release that was issued earlier this morning, please visit our website at summitmidstream.com, where you'll find it on the homepage or in the News section. With me today to discuss our second quarter of 2019 financial and operating results is Leonard Mallett, our Interim President and Chief Executive Officer; Marc Stratton, 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 our 2018 annual report on Form 10-K, which was filed with the SEC on February 26, 2019, 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 and distributable cash flow. These are non-GAAP financial measures, and we have provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release.

And with that, I'll turn the call over to Leonard Mallett.

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [3]

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Thanks, Blake. Good morning, everyone. Thanks for joining us on Summit's Second Quarter 2019 Earnings Call. We hope you've had an opportunity to review the news release we issued a short time ago. I would like to begin today's call with a perspective on our business performance during the second quarter.

Our adjusted EBITDA for the quarter totaled $68.6 million, and distributable cash flow totaled $38.4 million. Marc Stratton will review in detail the segment level quarterly performance, but relative to prior periods, our reported results were impacted by our first quarter sale of our Tioga Midstream system and approximately 2 weeks of downtime associated with commissioning our new 60 million cubic feet a day processing plant in the DJ Basin, which came online in June.

Normalizing for these headwinds, we estimate that our second quarter adjusted EBITDA would have been approximately $2 million higher or approximately $70.6 million. Second quarter distribution coverage was strong at 1.6x based on our quarterly distribution of $0.287 per unit, which will be paid on August 14 to unitholders of record as of August 7. We continue to expect distribution coverage to expand significantly over the course of 2019, in line with adjusted EBITDA growth, with fourth quarter 2019 coverage of approximately 2x.

Before I hand it over to Marc to review details of our financial results, I'd like to highlight some catalysts and milestones in the second quarter that are key to the Summit story.

First, in June, we successfully commissioned our new 60 million cubic feet a day processing plant in the DJ Basin. This new facility triples our processing capacity in the basin and provides a much needed outlet for rapidly growing production in this rural part of northern Weld County. It also paves the way for subsequent expansions, namely a second 60 million cubic feet a day plant, which is on the drawing board. However, we continue to closely evaluate the timing of construction for this plant, and we will proceed with the plant's construction only when we have the appropriate level of customer support.

Meanwhile, our new 60 million cubic feet a day plant is running well and is generating attractive NGL recoveries for our customers. We are currently averaging more than 30 million cubic feet a day, which represents an increase of more than 50% from our second quarter DJ volumes, and we expect continued volume growth over the balance of the year. Importantly, the active commissioning plant triggers a $600,000 per month contractual demand payment that we'll begin recognizing in the third quarter of 2019. And this complements higher revenues associated with additional volume growth.

Second, in our Utica Shale segment, we continue to experience a shift in throughput mix toward high-margin volumes that originate from pad sites directly connected to the SMU system. In fact, later in the second quarter, our anchor customer turned 4 new wells in line behind their SMU system. These wells, together with an additional 2 wells expected in the fourth quarter of 2019, will facilitate higher pad volumes in the second half of 2019, and this activity will drive our segment adjusted EBITDA growth in the Utica. Segment adjusted EBITDA for our Utica Shale assets was 7.2% higher than our first quarter results, reflecting increased activity behind our gathering system. We expect this trend to continue through the remainder of the year. Our customers are currently operating 1 rig upstream of the SMU gathering system, and we expect a separate customer to mobilize another rig on our system in the fourth quarter of 2019. This customer is scheduled to drill 5 wells on a pad site located in close proximity to an existing SMU pad site, which holds just 2 wells that average more than 60 million cubic feet a day in the first half of 2018. These 5 wells will represent a major growth catalyst for our Utica Shale segment, and we will be excited to see the production results from these wells in the first half of 2020.

And on June 27, we announced the final investment decision on the Double E Pipeline project and that we had secured Exxon Mobil as a JV partner in the project. We're excited about this marquee project and the strategic alliance with our new partner, who is the largest contiguous acreage holder in the northern Delaware Basin. First, a quick recap on the project. Double E has a highly attractive economic profile with 10-year take-or-pay volume commitments from a number of different shippers, including our partner's anchor shipper, XTO Energy, for a substantial majority of the pipelines 1.3 Bcf per day in-issue throughput capacity. Summit's 70% share of the expected CapEx for the project totals approximately $350 million, and more than 90% of that CapEx will occur in the years 2020 and 2021. Concurrent with FID, Summit amended its revolving credit facility to include a customary material project EBITDA adjustment for Double E, which will provide additional borrowing capacity during the construction of the project. Second, as it relates to details of the project, we have a dedicated team comprised of talent from both Summit and Exxon that will be focused on project execution. I am pleased to share that we are making progress. The team has filed our section 7(c) application with the FERC at the end of July. We secured steel for pipe production at attractive rates and expect to begin taking receipt of that pipe in the first half of 2020. Construction will commence upon receipt of FERC approval, which will occur by the end of the third quarter of 2020. In the interim, we continue to work diligently on areas such as right-of-way acquisition, design and engineering. We expect the construction of the roughly 130 miles of 36-inch and 42-inch pipeline will take approximately 12 months, and we estimate a third quarter 2021 in-service date, assuming timely receipt of required regulatory approvals. I want to add that Double E represents a critical part of our strategy for achieving scale, diversifying our operations downstream of the wellhead and becoming more integrated in our core focused areas. Our partnership with Exxon, a thorough and diligent counterparty, represents a strong sign of confidence and validation in the project and in Summit overall.

I'll now hand it over to our CFO, Marc Stratton, to review our quarterly results, and then we'll wrap up with a few closing comments.

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [4]

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Thanks, Leonard, and good morning, everyone. I'll begin by walking through the segments that comprise our core focus areas. Starting with our Utica Shale segment. The Summit Midstream Utica, or SMU system, averaged 260 million cubic feet a day in the second quarter. And segment adjusted EBITDA totaled $6.6 million, which was up 7.2% from the first quarter of 2019, as a result of 4 new wells in the first quarter of 2019 and a favorable volume mix. Second quarter volumes included 220 million cubic feet a day of volume from pad sites directly connected to the SMU system compared to 205 million cubic feet a day in the first quarter. This represents the second consecutive quarterly increase in pad level volumes, and an important trend to highlight given that these volumes are generating a gathering fee that is approximately 3x higher than the fee that we earn on volumes originating behind our TPL-7 Connector. Our anchor customer connected 4 new wells at the end of the second quarter, and as a result, current flow rates from pad sites directly connected to this system are currently averaging in excess of 235 million cubic feet a day. We also estimate that there was 23 million cubic feet a day of volume offline during the quarter associated with ongoing drilling and completion activity on pad sites with existing production.

We have a steady level of drilling activity on this system, and we expect the annualized segment adjusted EBITDA for the second half of 2019 will be higher than what we generated in the first half of the year.

Turning to our Ohio Gathering segment. Gross volume throughput in the second quarter of 2019 averaged 713 million cubic feet a day, which was relatively flat with the first quarter of 2019. We continue to see a steady level of drilling and completion activity in this segment, with 13 wells turned in line in the second quarter, bringing the total to 35 new wells for the first half of the year, with most of this activity occurring in the condensate window. Our customers have an inventory of 32 DUCs, and we have recently seen completion activity in the more prolific wet gas window, which we expect will generate more pronounced sequential quarterly growth in the second half of the year. Volumes have been trending in excess of 740 million cubic feet a day during July, with wells continuing to ramp and additional completions expected.

In the Williston segment, second quarter segment adjusted EBITDA was lower by $2 million compared to the first quarter of 2019, primarily as a result of our divestiture of Tioga Midstream, which contributed approximately $900,000 in our first quarter 2019 results. As a point of reference, Tioga contributed $2.3 million to our financial results in the second quarter of 2018.

Our Bison Midstream system experienced 2 weeks of downtime in the quarter due to operational issues stemming from maintenance on third-party infrastructure located downstream of our Bison system. These operational issues continued on the Bison system for the first 3 weeks of July, but they have now been largely resolved.

Second quarter liquids volumes averaged 94,000 barrels a day, down approximately 9,000 barrels a day from the first quarter of 2019, primarily due to the sale of Tioga, which accounted for approximately 1/3 of the volume decline, together with natural volume declines related to 44 new wells that were commissioned in the second half of 2018. 23 new wells were connected in the second quarter, including 12 that occurred at the end of the quarter, which resulted in average volumes in excess of 100,000 barrels a day for the last 2 weeks of June.

We're encouraged by the outlook for the Williston segment in the second half of 2019, based on our expectation for approximately 50 new well connects over the balance of the year, including 6 wells that were completed in July by a customer in northern Williams County that averaged more than 3,000 BOE per day on a 24-hour IP basis. The majority of well connections in the second half of 2019 are from customers who we gather both crude and produced water, so we feel really good about our volume outlook out here.

DJ Basin segment adjusted EBITDA totaled $2.8 million in the second quarter of 2019, a 5.3% increase compared to the first quarter of 2019, despite 2 weeks of downtime at the end of the quarter to facilitate the commissioning of our new 60 million a day plant. We estimate that this downtime impacted the DJ segment results by approximately $800,000. We are excited about the volume ramp that is currently underway in the DJ segment. And based on the combination of the more than 30 million cubic feet a day we are currently processing, together with roughly 50 new well connections expected in the second half of the year and approximately $600,000 of monthly demand payments that were triggered as a result of plant start-up, we expect for annualized segment adjusted EBITDA for the second half of 2019 to be more than triple the $7.3 million of DJ Basin segment adjusted EBITDA that we reported in all of 2018.

Lastly, volumes in the Permian Basin averaged 17 million cubic feet a day in the second quarter of '19, up 13.3% from the first quarter of '19. We commissioned a new compressor station at the end of the second quarter, which facilitated a new source of volume throughput for our gathering and processing system. Importantly, we generated positive EBITDA in the month of June and think we've turned the corner as it relates to some of the fits and starts we experienced in the first half of the year related to establishing a new operating footprint in a new geographic basin. We expect 13 new wells to be turned in line in the fourth quarter of 2019, and we expect continued improvement in process and recoveries and operating efficiencies as plant utilization increases.

Now turning back to the partnership. SMLP reported second quarter 2019 net income of $4.8 million and $43.5 million of net cash from operating activities. Capital expenditures for the second quarter of 2019 totaled $50.2 million and were primarily related to our continued expansion activities in the DJ Basin and the Permian Basin, including $8.8 million related to our Double E development activities. Going forward, we will account for Double E as an equity method investment. Of note, our legacy areas, which include the Piceance, Barnett and Marcellus Shale segments, included only $300,000 of total capital expenditures for the quarter and continue to represent a valuable source of free cash flow for the partnership.

We have $573 million outstanding under our $1.25 billion revolving credit facility at June 30, 2019, and $677 million of available borrowing capacity, subject to financial covenant limitations. In April 2019, we made a $100 million prepayment on the DPPO. Total leverage at quarter-end was 4.84x compared to a maximum limit of 5.5x. I'll remind you that we have over $225 million of debt on the balance sheet associated with our recently commissioned DJ plant, our Permian segment and our investment in Double E to date. None of these investments have yet thrown off any EBITDA, which is skewing our reported leverage ratio higher than normalized run rates by approximately 3/4 of a turn. We expect our leverage to naturally decline by the end of 2019 due to a combination of EBITDA growth in the second half of 2019, particularly from the recent start up of the 60 million a day DJ plant and an optimization of our Permian assets, together with slowing CapEx. We expect leverage to be around 4.7x by the end of 2019. Leonard will speak about potential asset sales later in the call, but to the extent we sell non-core assets, this will obviously accelerate our deleveraging.

With respect to our financial guidance, we expect full year 2019 adjusted EBITDA to be at the low end of our $295 million to $315 million range, primarily due to a delay in volume growth in the Permian and slower volume growth than previously assumed behind our DJ and SMU systems. We continue to expect total CapEx of $150 million to $175 million, even with our recent FID of the Double E project and, absent any asset sales, we continue to expect that full year 2019 distribution coverage will average between 1.75x and 1.95x.

Now I'll turn the call back over to Leonard.

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [5]

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Thanks, Marc. We are encouraged by the outlook for the business and the ramp in cash flows that we are witnessing behind our assets. In addition to EBITDA growth, we continue to take steps to strengthen our balance sheet. These steps include evaluating non-core asset sales as a means of streamlining our portfolio, redeploying capital from legacy areas to high-growth core focus areas and maintaining a laser focus on capital allocation and cost control. Given that we are having active discussions on multiple possible transactions, I can't speak in detail about the asset divestiture program, but I expect to be in a position to share more before the end of the year. I would like to underscore that any potential transaction will be grounded in Summit's objectives, including streamlining our portfolio, focusing capital deployment in our core focus areas and strengthening our balance sheet.

Our legacy areas, as previously discussed, represent the most likely candidates for divestiture. As Marc alluded, these business units generated more than $40 million of free cash flow in the second quarter of 2019 and are certainly valuable assets. And there is a healthy level of upstream activity in these regions. For example, our anchor customer on the DFW Midstream system commissioned 3 new wells just 2 weeks ago, which are significantly outperforming expectations. These wells, which are still ramping up, are averaging more than 10 million cubic feet a day each and will provide strong momentum for our Barnett segment into the second half of the year and should provide customers with added incentives to accelerate additional drilling activity.

On capital allocation, we are focused on accretive growth within our core focused areas, and we are dedicating more than 90% of our 2019 CapEx budget to expand our presence in these segments. In addition, we recently conducted an internal review of expenses, and we have identified more than $5 million per year of reoccurring expenses that will be eliminated without impacting the integrity of our assets, the safety of our operations or our level of customer service. We have begun to see the benefit of these measures in the second quarter, and we expect to see these results accelerate in the second half of 2019, with even more of an impact next year.

Finally, we are pleased to announce that Heath Deneke, an industry veteran, has been selected to be Summit's new President and CEO effective September 16. We issued a press release in that regard earlier this morning. Heath joins us from Crestwood Equity Partners, where he most recently served as its Chief Operating Officer. He brings industry knowledge, depth of experience and terrific leadership skills to the role, and we welcome him to the Summit family. We will have a smooth transition. We are definitely excited about our future under Heath's leadership.

To wrap up, we have a great deal of confidence in our outlook for the business in both the second half and over the long term. We have an excellent line of sight into cash flow ramp based on the ongoing ramp of our DJ facility together with run rate volumes and near-term completion activity in each of our core focus areas, which will be complemented over the long term by take-or-pay cash flows related to our Double E venture. We are thankful for your support and appreciate the opportunity to create long-term value for our unitholders.

And now let's open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And from RBC Capital Markets, we have Elvira Scotto.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [2]

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Can you comment a little bit more on your guidance. You expect to be at the low end of your EBITDA guidance range now due to a more moderated ramp of volume growth in your Permian Basin and Utica Shale segments, although you sounded pretty positive when you ran through those segments. So I guess, can you talk about the comfort level you have in your 2019 guidance, given all the recent producer commentary across all regions? Is this guidance based on discussions you've had recently? And then is it correct to assume that if producer activity changes throughout the year, for example, if a producer releases a rig, that would be a bigger impact in 2020 versus 2019? I know there's a lot in there but just any color would be helpful.

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [3]

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We get the gist of the question. Obviously, a lot of work has gone into our guidance and our evaluation of the second half. And we'll start with the first half and kind of what occurred there, the reasons for the soft quarter. As mentioned, headwinds associated with the Permian ramp up in volumes, which are there now, and getting the DJ plan on were significant issues relative to the soft start. And as we look at the second quarter, and I'll get Marc to elaborate on this, but as we look at the second half of the year, that is, we do have ramp in volumes that we outlined. And frankly, they are somewhat tapered from what was comprised in the original forecast. So we did have to taper those somewhat, but we still have a very positive outlook for the second half of the year.

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [4]

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This is Marc. You hit the nail on the head. Obviously, the commodity price backdrop is somewhat volatile at the moment, and we are seeing some customers make some subtle changes to their development plans. But I'll just reiterate, our long-term outlook continues to be strong. We've got 6 rigs working behind our system today and over 120 DUCs of inventory that are available to come online. It's important to understand that we set our full year guidance range wide enough to accommodate some changing customer plans. And given what we've experienced in the first half of the year, as Leonard just mentioned, with a slower pace of development behind our Permian system and downtime at the DJ and Bison assets and the fact that our DJ plant came on a little later than expected in the second quarter and given the fact that our customers are a bit more tempered in their pace of development, looking at the balance of the year through a more conservative lens, we think we'll trend towards the lower end of our guidance range for 2019. But this is certainly not to suggest that we won't see sizable growth relative to the first half. We will -- we see compelling visible growth actually in the second half of the year. Just to point out a few segments in the Utica, both our OGC and SMU segments are currently flowing at higher levels than what we saw in the second quarter, and we're really benefiting from some new wells that were recently completed. In the DJ, you clearly heard how encouraged we are. We're already processing over 30 million cubic feet a day, and we expect another 50 wells in the second half of the year to accelerate volumes which, coupled with sizable demand fees from the commissioning of the plant, give us really good visibility on cash flow growth here in the second half. In the Williston, over 50 new wells in the second half of the year. And then in the Permian, currently flowing in excess of 20 million a day, which is really a point at which we can efficiently operate the processing plant. We're looking for 13 new wells to complement that existing volume in the fourth quarter.

And so -- then with respect to our legacy non-core assets, seeing some fairly good activity here in the second quarter. The Barnett has had 3, I'd say, very large wells recently commissioned behind that system. We've got 5 new wells coming on behind the Mountaineer system in September, and then a rig on the Bison system today that will complete 8 new wells in the fourth quarter. So I think I'll just summarize, we are looking at the second half of the year through more of a conservative lens, and we're feeling confident about our growth profile in the second half.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [5]

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Okay. And then just maybe at a high level, can you talk about your SMU and Ohio Gathering businesses? I mean, especially given this negative sentiment around Northeast gas, how do you see that, those businesses growing over time?

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [6]

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Sure. I mean -- look, we have exposure really across all 3 windows in the play. Dry, wet and condensate on our OGC system in which we have an equity interest in. And then on our dry gas system at SMU, we currently have a rig behind our SMU system. We've seen to date about 8 wells turned in line, and we have an expectation for another 2 dry gas wells behind that system in the fourth quarter of this year. We do expect another customer, a separate customer on that SMU system, to bring another rig out here in the fourth quarter. And they are expecting some pretty stellar results from about 5 wells that they expect to drill here in the second half and commissioned in the first half of 2020. So look, they're excited about what they're seeing from a production standpoint, and we're excited to receive that.

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [7]

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I'll add. Additionally, we are seeing a throughput mix toward higher-margin volumes. So we are -- origin at the wells -- pad sites that are connected directly to us and so these volumes have definitely a higher margin, which is positive for us as well.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [8]

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Okay. So then just curious on the final drop-down, when Summit initially acquired the assets, the multiple was fixed at 6.5x, based on a formula. So given the performance of the assets since you fixed the DPPO payment, where do you think that multiple ultimately shakes out?

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [9]

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That's not a calculation that I have available currently. Obviously, we fixed the DPPO at 303.5 in the first quarter. And that's what's the important part of our go-forward obligation. From a multiple standpoint, I'm not prepared to comment on what that will be at some point in the future.

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Operator [10]

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From SunTrust, we have Tristan Richardson.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [11]

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We appreciate the update on your strategic priorities, particularly on the deleveraging side. It seems as though you have some things percolating that could materialize this year. Would you characterize the divestiture program as something that could be transformational from a leverage perspective or more of a modest streamlining of the portfolio?

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [12]

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So again, actively involved in discussions with several parties regarding asset divestiture, and our goal is to accomplish that by the end of the year. And it will have an effect on EBITDA, I'm sorry, on leverage. And to comment on it, though, we really have to take in consideration cash flows. And so we expect to be -- our leverage to be 4.7 by the end of the year. And then after that, it really depends on how cash ramp is and which assets move.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [13]

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Helpful. And then just on the second DJ plant, it seems like commentary may have shifted a little bit time frame. It seems a little bit more up in the air. Can you talk about sort of what keeps this thing -- what keeps this project a 2020 type event and things you're thinking about there?

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [14]

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Sure. So in Marc's comments, we mentioned in the DJ another 50 wells that are out there, and we also talked about a turbulent environment or dynamic environment, and so what we're doing, and I'll let Brad, our Chief Commercial Officer, elaborate on this, but what we're doing is staying in contact with our customers. And in the meantime, we are actually doing engineering on the project. We've permitted the project -- the plant. And so when we feel comfortable that the customers are ready, we'll be able to pull the trigger.

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Brad N. Graves, Summit Midstream Partners, LP - Executive VP & Chief Commercial Officer of Summit Midstream GP, LLC [15]

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Yes. Leonard, the only thing I would add to that is that this is the first -- the third quarter will be the first quarter that we have the full quarter of the most recent plant that we've commissioned at Hereford. So we're going to see what that looks like. We'll stay in front of the producers, and we'll optimize the timing of the second plant.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [16]

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Helpful. And then just last one from me. Leonard and Marc, just at the risk of putting words in the new leadership's mouth, can you give us a preview of how the strategy might differ or the tack of Summit LP might change with different leadership?

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [17]

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You can read Heath's background, and a lot of you already know Heath. A lot of experience, relevant experience. And when I say relevant, I mean in the same basins, the same thing that we do. Crestwood looks a lot a like Summit, and Summit looks a lot like Crestwood a few years ago. So while our core strategy does not change, I mean we still are about streamlining the portfolio, capital discipline, growth in our core focus areas, Steve is going -- I mean, Heath is going to come in and enhance and advance those core strategies. And so, I'm sure he will -- he is definitely an added resource for Summit. His experience and knowledge in our basins is just immense.

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Operator [18]

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(Operator Instructions) From Capital One Securities, we have Kyle May.

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Kyle May, Capital One Securities, Inc., Research Division - Associate [19]

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On the Double E project, you mentioned the 7(c) application has been filed with the FERC. We've heard from some other companies that the FERC approval process has become slower lately. Have you factored that into your time line or taken any steps to keep the project on schedule?

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [20]

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We've been very strategic about that. So even before -- we've been talking about FERC filing for months now. And so we've been having monthly meetings with the FERC, monthly meetings with the BLM, and so when they received our FERC filing, there were no surprises. They helped us work on that filing, so that helps us tremendously expedite that. Also, we have some experienced people that help put these documents together, again working with the FERC. And we anticipate a 12-month process, and that's what they've communicated to us as well.

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Kyle May, Capital One Securities, Inc., Research Division - Associate [21]

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Okay. And as we're getting a little bit closer to 2020, you've got several big-ticket items. It looks like Summit's going to spend in the ballpark of $45 million to $50 million for Double E. You've also got the $300 million DPPO payment, plus any other growth in maintenance CapEx. Can you give us your latest thinking around how you're going to fund next year?

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [22]

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Sure, Kyle. This is Marc. Nothing has changed with respect to what we've said before regarding our financing plans. So our plan is to finance these obligations on balance sheet with a combination of debt and equity. And then we'll make corporate financing decisions to accommodate these obligations. I mean, obviously, we expect to use our revolver to fund our debt, and we expect our borrowing capacity to increase under the revolver well into 2020 as our leverage ratio comes down from both increasing EBITDA and slowing CapEx. But as I mentioned in my prepared remarks, our leverage ratio is currently skewed towards -- at 4.84x, it is higher to the tune of about 3/4 of a turn due to some investments that we've made recently, namely our new DJ plant, the Permian system and Double E, all of which have yet to throw off any EBITDA. And so as those ramp up, we would expect some natural deleveraging to occur.

With respect to equity, we continue to move forward on our process of evaluating non-core asset sales as a way to bring equity into the business. And then as we've mentioned many times, we always have the ability to backfill our equity needs by issuing equity for some portions of the DPPO. Remember also that we do have some latitude with respect to when we make that DPPO payment. Just to remind you, we can begin making that payment in March of 2020, but we do have options to extend that payment throughout 2020 and take advantage of higher borrowing capacity throughout that time period.

With respect to Double E, obviously, we secured a great JV partner in Exxon Mobil to develop this project. They currently have a 30% interest in Double E, and they have an option to increase that interest by 20% in the future. But prior to FID of Double E, we mentioned this in a prior press release, we worked with our bank group to find ways to enhance our ability to finance Double E on balance sheet. We accomplished this with the banks agreeing to provide increased flexibility related to our financial performance metrics during the construction period. And outside of that, I'll just mention, we're also having discussions around our longer-term strategy of potentially incurring non-recourse asset level financing, which we think could be a very efficient and competitive alternative for us.

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Operator [23]

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And from U.S. Capital Advisors, we have James Carreker.

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James Eugene Carreker, U.S. Capital Advisors LLC, Research Division - Executive Director [24]

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I guess, one question on -- you talked about being able to issue equity for the DPPO. I mean, is that something that you would seriously consider, I guess, kind of given how the stock has performed, and then, I guess, the yield on the stock as it sits today?

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [25]

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Yes, James. This is Marc. I mean, it is absolutely something that we will consider. It's obviously a balancing act that we need to take into consideration, with how much equity and how much debt. Obviously, our leverage ratio will be front and center when we determine the appropriate consideration mix. But we will consider equity. We will also consider, as I mentioned, some of the options that we have, already embedded within the agreement, to defer some of that payment throughout 2020 to be able to take advantage of a potential higher borrowing under the revolver. And then -- I'll tell you, this all is predicated on our success and movement forward from an asset sale perspective. And so that will really color a lot of our behavior downstream of that event.

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James Eugene Carreker, U.S. Capital Advisors LLC, Research Division - Executive Director [26]

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And then, I guess, I know it was only 6 months ago that you reduced the dividend. But from a capital allocation standpoint, does it make sense to reevaluate that dividend policy in near term?

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Marc David Stratton, Summit Midstream Partners, LP - CFO & Executive VP & Principal Accounting Officer of Summit Midstream GP, LLC [27]

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We think that the distribution reduction that we announced back in February of this year was meaningful enough and really gave us the ability to improve our distribution coverage, which for the last 2 quarters, we've reported in excess of 1.6x distribution coverage. And it also gave us the ability to evaluate asset sales which, as we've mentioned, we're doing. And so we think the reduction was large enough. It was meaningful enough to our capital position and financial position. And, no, we are not thinking about further reductions to that at the moment.

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James Eugene Carreker, U.S. Capital Advisors LLC, Research Division - Executive Director [28]

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Okay. And one last one, if I could. The public float of SMLP is now sub $300 million. Is there any discussions with Energy Capital Partners to kind of maybe make this a take-private situation, just given that it's -- the public side is relatively small relative to the total EV of the enterprise?

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [29]

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The simple answer is no. There are no discussions with ECP about taking private.

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Operator [30]

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We have no further questions at this time. We'll now turn it back to Leonard Mallett for closing remarks.

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Leonard Wayne Mallett, Summit Midstream Partners, LP - Interim President, CEO, COO & Director of Summit Midstream GP, LLC [31]

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Thank you. I just want to note that in preparation for this call, I was looking back at a previous script. We talked a lot about the DJ plant and getting that done, and so that's done now. We've actually accomplished that objective. We talked a lot previously about FID and a JV in Double E, and that is done. We talked about FERC filing. Done. We also talked a lot about capital and cost initiative, and I'll call that done in doing. We continue to be diligent with both capital and cost.

The other thing we talked about, obviously, is a search for the CEO for Summit, to lead us forward and that is done. We have an excellent candidate in Heath. I actually had some time to spend some time with him visiting with him. Very knowledgeable, very driven, results oriented. Simply put, he is the right guy for Summit at the right time.

And lastly, we talked a lot about asset sales and balance sheet management. And that is something that we're doing. It's well underway. So when I look back, we have a pattern of execution. And when I look forward, we've laid the foundation for a solid future. So I do thank you guys for your interest in Summit, and we look forward to reporting our results next quarter.

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Operator [32]

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Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.