Summit Midstream Corp. (NYSE:SMC) Q1 2025 Earnings Call Transcript

Summit Midstream Corp. (NYSE:SMC) Q1 2025 Earnings Call Transcript May 8, 2025

Operator: Thank you for standing by. My name is Lee, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2025 Summit Midstream Corporation Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Randall Burton. Please go ahead.

Randall Burton: Thanks, operator, and good morning, everyone. If you don’t already have a copy of our earnings release, please visit our website at www.summitmidstream.com, where you’ll find it on the homepage, Events and Presentations section or Quarterly Results section. With me today to discuss our first quarter of 2025 financial and operating results is Heath Deneke, our President, Chief Executive Officer and Chairman; Bill Mault, 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 SMC’s annual report on Form 10-K for the fiscal year ended December 31, 2024, which the company filed with the SEC on March 11, 2025, as well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results. Please also note that on this call, we use the terms EBITDA, adjusted EBITDA, distributable cash flow and free 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 Heath.

Heath Deneke: Thanks, Randall, and good morning, everyone. Thank you for joining us today to discuss our financial and operating results for the first quarter of 2025. We had an active first quarter, both from a corporate and operational perspective, and we remain on track to continue to execute on our strategic objectives for the remainder of the year. Combined with the various strategic activities we implemented in 2024, Summit is positioned with a strong balance sheet to remain resilient despite the latest macro down cycle while opportunistic on the M&A front. In January, we raised $250 million of additional senior secured second lien notes, the proceeds of which were used to repay revolver borrowings and position the company with over $350 million of liquidity.

Q&A Session

In March, the Board of Directors reinstated a cash dividend on the Series A preferred stock, which is the first step as we continue to work towards the reinstatement of a common dividend in the future. Also in March, we closed on the accretive acquisition of Moonrise Midstream, which further expands our DJ Basin footprint while providing additional operating synergies and capacity to help meet future growth in the basin over the years to come. Operationally, we connected 41 wells during the first quarter, which was in line with expectations, and we continue to have an active customer base with 6 active drilling rigs and over 100 drilled but uncompleted wells currently behind our system. Now obviously, there has been a significant reduction in crude oil prices since we released guidance in 2025 back in early March, and that does have some potential to dampen activity levels in the second half of the year in our crude-oriented Rockies segment.

However, the outlook on the natural gas side remains strong, which, from an overall Summit portfolio perspective, has the potential to mitigate the potential downside exposure associated with the crude segment for the year. In the Rockies segment, we connected 30 new wells to the system during the first quarter, including 22 in the DJ and 8 in the Williston. And to date, substantially all of the wells scheduled to come online in the first half of the year have already been turned in line or are in the process of being completed. Additionally, we commissioned a significant optimization project in March that is expected to improve our adjusted EBITDA margins beginning in the second quarter. Looking at the second half of the year for the Rockies segment, we currently have 4 rigs running behind our systems.

And with the exception of one pad on the schedule that’s expected to be completed in December, all of the remaining wells that are expected to be turned in line during the second half of the year are either drilled but uncompleted wells or are currently in the process of being drilled. So as you would expect, we remain in very close communication with our customer base to evaluate the potential implications of the current crude price environment on well completion activities and turn-in-line dates during the second half of the year. While there has been some relatively minor revisions to date, and there is potential for slippage if prices were to weaken further towards the low 50s, our customers expect second half of 2025 completion schedules to largely remain intact at this time.

And just as a reminder, as we said in the earnings release, our Rockies segment adjusted EBITDA guidance for the year is $100 million to $125 million, with the low end of the range already reflecting a 2- to 3-month delay relative to current customer drilling and completion schedules that have been provided for the second half of the year. In the Mid-Con segment, we turned in line 11 wells during the quarter, including 5 in the Barnett and 6 in the Arkoma. And subsequent to quarter end, we turned in line an additional 6 wells in the Barnett and 3 in the Arkoma. While the wells in the Arkoma did have lower-than-expected BTU and NGL content, the initial production rates outperformed our internal expectations, which led to significant volume growth relative to the fourth quarter.

We continue to remain very excited about the Mid-Con segment as natural gas strip prices remain favorable, and we have significant dedicated inventory remaining as demand is expected to grow in the coming years in the Gulf Coast region. And finally, in the Permian segment, we continue to see gas volumes increase on the Double E pipeline with average daily volumes growing by 8% quarter-over-quarter. And as of this week, we’re actually averaging close to 700 million a day of throughput on the system. So even with the recent softening in crude prices, we still anticipate a tremendous amount of growth in residue gas in the Delaware Basin over the next 5 years. And given that most of the existing in-basin pipeline takeaway capacity is approaching full utilization, we remain very optimistic in our ability to further commercialize Double E in the years ahead.

So given the activity levels we are seeing today behind our footprint and real-time feedback from our customers, we are at this time, reiterating our full year 2025 financial guidance range of $245 million to $280 million in adjusted EBITDA and total capital expenditures of $65 million to $75 million. As we stated in the earnings release, to the extent all of the remaining wells anticipated to come online during the second half of the year in the Rockies segments are deferred, we would expect to trend towards the lower end of our existing guidance range. As always, we’ll continue to monitor activity levels behind our footprint, and we’ll provide updates throughout the year as they become available. And with that, I’ll hand it over to Bill to provide additional details on our financial results.

Bill Mault: Thanks, Heath, and good morning, everyone. Summit reported first quarter adjusted EBITDA of $57.5 million and capital expenditures of $20.6 million, with the majority of the CapEx spend in the Rockies and Mid-Con segments associated with pad connections and the previously announced optimization project in the Rockies. With respect to SMC’s balance sheet, we had net debt of approximately $959 million, and our available borrowing capacity at the end of the first quarter totaled approximately $354 million, which included $1 million of undrawn letters of credit. Now moving on to the segments. The Rockies segment, which is inclusive of our DJ and Williston Basin systems, generated adjusted EBITDA of $24.9 million, an increase of $1.6 million from the fourth quarter, primarily due to an 8.8% increase in liquids volume throughput, higher freshwater sales and the acquisition of Moonrise Midstream in the DJ Basin on March 10, 2025.

This was partially offset by a 1.5% decrease in natural gas volume throughput. Liquids volumes averaged 74,000 barrels a day, an increase of 6,000 barrels a day relative to the fourth quarter, primarily due to 17 new wells connected to the system late in the fourth quarter of 2024, 8 new wells connected to the system during the quarter and a partial month contribution from Moonrise Midstream. Natural gas volumes averaged 129 million cubic feet per day, a decrease of 2 million cubic feet per day relative to the fourth quarter, primarily due to natural production declines from wells brought online during the second half of 2024 behind our DJ Basin system, partially offset by 22 new wells connected during the quarter and partial month contribution of Moonrise Midstream.

The Rockies segment currently has 4 rigs running behind the systems, including 3 in the Williston and 1 in the DJ and more than 90 DUCs. The Permian Basin segment, which includes our 70% interest in the Double E Pipeline, reported adjusted EBITDA of $8.3 million, an increase of $0.5 million relative to the fourth quarter, due primarily to higher volume throughput on the pipe. Volume throughput on Double E averaged 664 million cubic feet per day during the first quarter. The Piceance segment reported adjusted EBITDA of $11.8 million, flat relative to the fourth quarter due primarily to lower operating expenses, partially offset by a 4% decrease in volume throughput. The Mid-Con segment reported adjusted EBITDA of $22.5 million, an increase of $9.6 million relative to the fourth quarter, primarily due to the acquisition of Tall Oak that closed in December 2024 and an increase in volume throughput.

Volume throughput on the system increased 48% relative to fourth quarter, primarily due to incremental volume throughput from a full quarter contribution of the Tall Oak assets, 11 new well connections, incremental production from a new customer connected to the Arkoma system, a full quarter contribution of production that was previously shut in, in the Barnett, all of which was partially offset by initial production declines from wells connected in the second half of 2024. There are currently two rigs running, including one in the Barnett and one in the Arkoma and 16 DUCs behind the system. Additionally, a customer in the Barnett has recently completed and starting flowing a 3-well pad that was drilled and held in DUC inventory since 2023.

This same customer continues to run a completion crew on another existing DUC behind the system. And with that, I’ll turn the call back over to Heath for closing remarks.

Heath Deneke: Thank you, Bill. In conclusion, Summit is well positioned with a strong balance sheet and active customer base to navigate the current market environment and capitalize on growth opportunities. We will continue to focus on executing our strategic initiatives, maintaining financial discipline and delivering value to our shareholders. We thank you for your continued support and confidence in Summit, and I look forward to updating you on our progress in the coming quarters ahead. And with that, operator, I’d like to open up the call for questions.

Operator: [Operator Instructions] There are no questions at this time. This concludes today’s conference call. You may now disconnect.

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