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Summit Midstream Partners, LP Reports Fourth Quarter and Full-Year 2019 Financial Results & Provides 2020 Financial Guidance

- Fourth quarter 2019 net loss of $327.1 million , primarily attributable to a $336.7 million non-cash impairment associated with our equity investments in Ohio Gathering and Ohio Condensate

- Fourth quarter 2019 adjusted EBITDA of $77.5 million , an all-time high, and Distributable Cash Flow ("DCF") of $47.1 million , driven by record liquids volume throughput in the Williston Basin and the impact of organizational expense reductions

- Fourth quarter 2019 distribution coverage of $35.4 million and distribution coverage ratio of 4.0x

- Executed financing transaction to shift next $80 million of Double E capital to a third-party investor

- Providing 2020 adjusted EBITDA guidance of $260 million to $285 million

- Providing 2020 total capital expenditure guidance of $50 million to $70 million , including approximately $10 million related to Double E; expect to obtain institutional project financing for the majority of remaining Double E development and construction costs

- Expect to generate sufficient cash in 2020, after capital expenditures and distributions, to reduce debt by approximately $50 million , excluding the impact of any future potential asset sales

THE WOODLANDS, Texas , Feb. 28, 2020 /PRNewswire/ -- Summit Midstream Partners, LP (NYSE: SMLP) announced today its financial and operating results for the three months ended December 31, 2019 , including a net loss of $327.1 million , adjusted EBITDA of $77.5 million , DCF of $47.1 million , and a quarterly distribution coverage ratio of 4.0x.  Net loss for the quarter was primarily related to a $336.7 million non-cash impairment associated with our equity investments in Ohio Gathering and Ohio Condensate due to an expected decrease in customer activity as a result of lower forward commodity prices.  Net loss also included a $14.2 million non-cash impairment related to the $12.0 million sale of a natural gas gathering and processing sub-system in the Piceance Basin ("RRG West") in December 2019 , and $5.7 million of restructuring, severance and transaction expenses associated with the November 2019 DPPO amendment and our ongoing initiative to reduce our cost structure. 

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

Heath Deneke , President and Chief Executive Officer, commented, "SMLP has taken a number of actions since the fourth quarter of 2019 to prepare for a challenging macro environment in 2020.  In general, we expect a reduction in our customers' 2020 drilling and completion activities compared to 2019 as a result of a weakening commodity price backdrop, together with more limited access to capital in the upstream sector.  Our 2020 adjusted EBITDA guidance of $260 million to $285 million is based on current plans from our customers, with the lower end of guidance incorporating a substantial amount of risking to each customer's development timelines and production forecasts, which we believe reflects the current market backdrop.  If our customers perform consistently with the recent forecasts that they have provided, we will be positioned to achieve the high end of our guidance range.  We expect 2020 total capital expenditures of $50 million to $70 million , including maintenance capex and approximately $10 million related to our equity method investment in Double E."     

"We made significant progress on a number of major initiatives since the fourth quarter that were designed to mitigate the negative impact of further industry weakness in 2020, strengthen the balance sheet, increase our financial flexibility, and right-size our cost structure. These initiatives included:

  • Our partial payment of the DPPO in the amount of $122.75 million , and extension of the DPPO payment from 2020 to 2022,
  • Our announcement to shift the next $80 million of Double E capital investments to a third-party investor at a 7% annualized distribution rate, while retaining long-term upside from the project,
  • Our recent announcement to reduce our quarterly distribution by 56.5% to $0.125 per unit, which will enable us to incrementally retain over $60 million of annualized cash flow that will be used to accelerate de-leveraging,
  • Our continued commitment to reducing costs across our organization and enhancing operating margins, which we expect will result in at least $10 million of expense savings in 2020, and will enable up to $20 million of annual run rate expense savings thereafter, and
  • Our enhanced capital discipline, and a higher return threshold for incremental capital investments, as represented by the significant reductions in total capital expenditures, which we now expect to be less than $70 million for 2020."

"We believe that the above actions will enable SMLP to generate sufficient cash in 2020 to pay down approximately $50 million of outstanding debt, excluding the impact of any future potential asset sales.  We continue to actively evaluate potential divestitures and joint ventures of certain of our assets, and will continue to do so in a patient and disciplined manner.  Our expectation is that any divestiture will serve to accelerate de-leveraging of SMLP's balance sheet."      

"We reported adjusted EBITDA in the fourth quarter of 2019 totaling $77.5 million , which was a quarterly record for SMLP, but slightly below our expectations, primarily due to deferred well connections in the quarter and faster than expected declines from new wells, primarily behind our Utica Shale and Ohio Gathering systems.  Fourth quarter results reflected higher sequential adjusted EBITDA across five of our eight reportable segments as a result of higher volumes and expense reductions that we began to realize in the quarter.  The Williston Basin segment generated exceptionally strong results for the quarter, including a 12.6% sequential quarterly increase in volume throughput to a record 118.5 Mbbl/d, and a $6.4 million sequential quarterly increase in segment adjusted EBITDA."

2020 Financial Guidance

SMLP is releasing financial guidance for 2020, which is summarized in the table below.  These projections are subject to risks and uncertainties as described in the "Forward-Looking Statements" section at the end of the release.


2020 Financial Guidance Range

($ in millions)

Low


High

Natural Gas Throughput (MMcf/d)




    Core Focus Areas

625

-

715

    Legacy Areas

900

-

945

Total

1,525

-

1,660





Liquids Throughput (Mbbl/d)

100

-

105





Adjusted EBITDA




    Core Focus Areas

$155

-

$175

    Legacy Areas

$135

-

$140

    Unallocated G&A, Other

($30)

-

($30)

Total

$­­260

-

$285





Capital Expenditures




    Growth Capital Expenditures

$37

-

$53

    Maintenance Capital Expenditures

$13

-

$17

Total

$­­50

-

$70





Current Distribution Coverage Ratio

2.75x

-

3.25x


We believe our 2020 financial guidance reflects an appropriate level of risking to the most recent drill schedules and volume forecasts provided by our customers.  The mid-point of our guidance incorporates an approximately 45% reduction in new well connects on our systems in 2020 as compared to 2019; however, approximately 70% of the new wells that are included in our forecast in 2020 are either drilled or are currently being drilled.  The remaining new wells that are expected to be drilled and completed in our 2020 forecasts have active permits and have recently been affirmed by our customers to be included in their 2020 capital programs.  Our customers are currently operating 6 drilling rigs behind our systems.  We expect the vast majority of our customers' well completion activities to occur between the second and fourth quarters of the year.  SMLP's 2020 financial guidance also includes the impact of contractual MVC step-downs, including a $4.8 million decrease relative to 2019 in the Barnett Shale, a $3.3 million decrease in the Piceance Basin, and a $1.0 million decrease in the Williston Basin.  Our guidance also includes the $10 million benefit from a cost savings initiative that we began in 2019, but does not fully incorporate the up to $20 million run rate benefit that we are targeting by the end of 2020. 

Capital Expenditures

  • Growth capital expenditures of $37 million to $53 million , focused primarily on pad connections and line looping projects to accommodate near-term volume growth in the Williston Basin, Utica Shale and DJ Basin segments;
  • Maintenance capital expenditures of $13 million to $17 million ;
  • With the exception of an estimated $10 million investment in Double E, which is included in the growth capital expenditures noted above, we expect third-party capital arrangements to finance the remainder of our capital contributions to Double E in 2020.

Fourth Quarter 2019 Business Highlights
In the fourth quarter of 2019, SMLP's average daily natural gas throughput for its operated systems decreased 2.7% over the third quarter of 2019 to 1,356 MMcf/d, and liquids volumes increased 12.6% over the third quarter of 2019 to 118.5 Mbbl/d.  SMLP's customers currently maintain more than 110 DUCs in inventory upstream of our systems.

Core Focus Areas :

  • Core Focus Areas generated combined sequential quarterly segment adjusted EBITDA growth of 15.9% over the third quarter of 2019, to $45.1 million .
  • Utica Shale segment adjusted EBITDA of $8.6 million , a 9.3% increase over the third quarter of 2019, included a $2.1 million payment related to a contract amendment, partially offset by a 7.1% decrease in high margin volumes gathered from pad sites directly connected to the gathering system. Volumes in the fourth quarter of 2019 were negatively impacted by steeper than anticipated declines associated with well completions that occurred in the second quarter of 2019. We continue to expect one of our Utica Shale customers to commence production from a five-well pad site in March 2020 with initial flow rates in excess of 150 MMcf/d, which would represent approximately 65% of our fourth quarter 2019 pad level volume. These new wells are expected to generate a significant increase in volume throughput and segment adjusted EBITDA in 2020.
  • Ohio Gathering segment adjusted EBITDA totaled $9.5 million , a $0.9 million decrease from the third quarter of 2019. Lower segment adjusted EBITDA was driven by a 6.6% decrease in volume throughput, due to natural declines associated with 13 new wells that were connected in the third quarter of 2019, and no new well connections in the fourth quarter. We are forecasting Ohio Gathering volume throughput and segment adjusted EBITDA to be lower in 2020 compared to 2019 due to a reduction in expected drilling and completion activities.
  • In the Utica Shale and Ohio Gathering combined segments, we expect our customers to complete approximately 35 wells in 2020, or roughly half of the number of wells completed in 2019.
  • Williston Basin volume throughput averaged 118.5 Mbbl/d in the fourth quarter, a record for SMLP and a 12.6% increase over the third quarter of 2019. Higher volume throughput was driven by 12 new well connections in the fourth quarter, which enabled segment adjusted EBITDA of $20.2 million , a 46.0% increase over the prior quarter. Our customers are currently operating one drilling rig and have 38 DUCs in inventory. We expect that segment adjusted EBITDA for the Williston Basin will remain relatively flat in 2020 compared to 2019, primarily as the result of lower operating expenses in 2020 versus 2019, offset by a reduction in drilling activity by one of our historically more active customers that is shifting resources to delineate and unlock inventory in other parts of the basin. We are encouraged by recent well results on the system and we are seeing a significant increase in planned drilling and completion activity from certain of our other Williston Basin customers towards the end of 2020, which we expect will continue into 2021 and beyond.
  • DJ Basin segment adjusted EBITDA totaled $6.6 million in the fourth quarter of 2019, a 1.1% increase over the third quarter of 2019, due to a 6.1% increase in total throughput over the third quarter of 2019 to 35 MMcf/d. We expect segment adjusted EBITDA growth in 2020, primarily as a result of a full year's benefit of our recently expanded 60 MMcf/d processing plant and associated monthly demand payments. Our outlook for the DJ Basin in 2020 contemplates approximately 50 well completions, which we expect will generate higher volume throughput in 2020 compared to the fourth quarter of 2019, and is based on our customers' current one rig drilling program and supplemented by more than 25 wells that our customers have in DUC inventory.
  • The Permian Basin segment generated $­­0.1 million of segment adjusted EBITDA in the fourth quarter of 2019, down from $0.2 million from the prior quarter. Fourth quarter results were positively influenced by 11 new well connects in the period, which facilitated total volume throughput of 25 MMcf/d, a 25.0% improvement over the third quarter. Segment adjusted EBITDA in the fourth quarter of 2019 was negatively impacted by a $0.5 million increase in operating expenses. Our 2020 outlook for our Permian Basin segment contemplates modest growth in volume throughput and segment adjusted EBITDA.

Legacy Areas :

  • Legacy Areas generated $39.0 million of combined segment adjusted EBITDA in the fourth quarter of 2019 and had combined capital expenditures of $0.2 million .
  • Piceance Basin segment adjusted EBITDA of $24.1 million , an increase of $0.1 million over the third quarter of 2019.
  • Disposed of RRG West, an underutilized natural gas gathering and processing sub-system in the Piceance Basin that included over 1,200 miles of pipeline in western Colorado and eastern Utah , and represented less than 25 MMcf/d of volume throughput. The transaction, which was effective December 1, 2019 , generated sale proceeds of $12.0 million , and has significantly reduced our segment operating expenses, which will enable more effective operation of our higher utilization areas in the Piceance Basin going forward.
  • Barnett Shale segment adjusted EBITDA decreased $1.3 million from the third quarter of 2019, as a result of a 4.0% decline in volume throughput and the expiration of a multi-year customer MVC in October 2019 that reduced segment adjusted EBITDA by approximately $1.0 million in the fourth quarter of 2019 compared to the third quarter of 2019.
  • Marcellus Shale segment adjusted EBITDA of $5.3 million , up $0.4 million over the third quarter of 2019 due to an 8.0% increase in volume throughput from 5 new wells that were completed late in the third quarter of 2019. Our anchor customer has nine DUCs in inventory and is currently drilling nine additional wells.

The following table presents average daily throughput by reportable segment on a quarter-over-quarter and year-over-year basis:



Three   months   ended
December
  31,



Year ended December   31,




2019



2018



2019



2018


Average daily throughput (MMcf/d):

















Utica Shale



254




309




273




359


Williston Basin (1)



13




18




12




18


DJ Basin



35




21




27




17


Permian Basin



25




3




19




1


Piceance Basin (2)



415




526




452




551


Barnett Shale



237




255




251




253


Marcellus Shale



377




401




363




474


Aggregate average daily throughput



1,356




1,533




1,397




1,673



















Average daily throughput (Mbbl/d):

















Williston Basin



118.5




108.9




105.3




94.9


Aggregate average daily throughput



118.5




108.9




105.3




94.9



















Ohio Gathering average daily throughput (MMcf/d) (3)



726




780




732




769


__________

(1)

The Williston Basin segment includes the Tioga Midstream system, which was sold in March 2019.

(2)

The Piceance Basin segment includes the RRG West system, which was sold in December 2019.

(3)

Gross basis, represents 100% of volume throughput for Ohio Gathering, subject to a one-month lag.

The following table presents adjusted EBITDA by reportable segment on a quarter-over-quarter and year-over-year basis:



Three   months   ended December   31,



Year ended December   31,





2019



2018



2019



2018





(In thousands)



Reportable segment adjusted EBITDA (1):


















Utica Shale


$

8,595



$

5,826



$

29,292



$

30,285



Ohio Gathering (2)



9,542




10,386




39,126




39,969



Williston Basin (3)



20,213




21,852




69,437




76,701



DJ Basin



6,625




3,030




18,668




7,558



Permian Basin



117




(309)




(879)




(1,200)



Piceance Basin (4)



24,138




28,832




98,765




111,042



Barnett Shale



9,560




11,498




43,043




43,268



Marcellus Shale



5,316




5,498




20,051




24,267



Total


$

84,106



$

86,613



$

317,503



$

331,890



Less:  Corporate and Other (5)



6,569




9,748




30,362




37,805



Adjusted EBITDA


$

77,537



$

76,865



$

287,141



$

294,085



__________

(1)

We define segment adjusted EBITDA as total revenues less total costs and expenses, plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) adjustments related to capital reimbursement activity, (vi) unit-based and noncash compensation, (vii) change in the Deferred Purchase Price Obligation, (viii) impairments and (ix) other noncash expenses or losses, less other noncash income or gains.

(2)

Represents our proportional share of adjusted EBITDA for Ohio Gathering, subject to a one-month lag.  We define proportional adjusted EBITDA for our equity method investees as the product of (i) total revenues less total expenses, excluding impairments and other noncash income or expense items and (ii) amortization for deferred contract costs; multiplied by our ownership interest in Ohio Gathering during the respective period.

(3)

The Williston Basin segment includes the Tioga Midstream system, which was sold in March 2019.

(4)

The Piceance Basin segment includes the RRG West system, which was sold in December 2019.

(5)

Corporate and Other represents those results that are not specifically attributable to a reportable segment (such as Double E) or that have not been allocated to our reportable segments, including certain general and administrative expense items, natural gas and crude oil marketing services, interest expense and a change in the Deferred Purchase Price Obligation.

Capital Expenditures
Capital expenditures totaled $30.6 million in the fourth quarter of 2019, including maintenance capital expenditures of $3.6 million , a decrease of 24.5% compared to the third quarter of 2019.  Capital expenditures in the fourth quarter of 2019 were primarily related to the commissioning of the 60 MMcf/d processing plant in the DJ Basin along with associated compressor station investments as well as pad connection capital expenditures in the Utica Shale and Williston Basin.  SMLP also made capital contributions totaling $7.0 million in the fourth quarter of 2019, with respect to its 70% equity investment in Double E Pipeline, LLC. 



Year ended December   31,




2019



2018




(In thousands)


Cash paid for capital expenditures (1):









Utica Shale


$

3,902



$

5,719


Williston Basin



30,861




25,202


DJ Basin



80,487




64,920


Permian Basin



47,263




83,823


Piceance Basin



1,946




7,887


Barnett Shale (2)



184




1,370


Marcellus Shale



693




1,030


Total reportable segment capital expenditures



165,336




189,951


Corporate and Other (3)



16,955




10,635


Total cash paid for capital expenditures


$

182,291



$

200,586


...

__________ 

(1)