Summit Midstream Partners, LP (NYSE:SMLP) Q4 2023 Earnings Call Transcript

Liquids volumes average 81,000 barrels per day, a decrease of 4,000 barrels a day relative to the third quarter, primarily due to natural production declines, partially offset by five new wells connected to the system during the quarter. Natural gas volumes averaged 126 million cubic feet a day, an increase of 9 million cubic feet per day, relative to the third quarter, primarily due to wells connected during the second quarter reaching peak production and 37 new wells connected to the system during the quarter that should reach peak production in the second quarter of 2024. There is currently one rig running behind our systems and more than 80 DUCs, which represents the majority of the well connections we are expecting in 2024. The Permian Basin segment, which includes our 70% interest in the Double E pipeline reported adjusted EBITDA of $8 million, an increase of approximately $2 million relative to the third quarter, due primarily to contractual ramp ups in take-or-pay volume to 985 million cubic feet per day.

Volume throughput on Double E averaged 386 million cubic feet per day, representing an increase of 18% relative to the third quarter. There continues to be approximately 100 rigs running at Eddy and Lea Counties and announced processing plant expansions in Delaware Basin, giving us confidence in the fundamental long-term outlook of the pipe. The Piceance segment reported adjusted EBITDA of $16.1 million, up $0.8 million relative to third quarter due primarily to 21 new well connects to the system during the quarter, driving volume throughput to 317 million cubic feet per day during the quarter. The Barnett segment reported adjusted EBITDA of $5.8 million, a decrease of $0.3 million relative to third quarter, primarily due to an increase in operating expenses, partially offset by an increase in volume throughput from six new wells connected to the system during the quarter.

There is currently one rig running and 24 DUCs behind the system. And as we have discussed previously, a customer continues to keep approximately $20 million a day of production shut-in due to the low natural gas prices and we estimate these shut-ins negatively impacted adjusted EBITDA by approximately $1.3 million during the quarter. I’d like to now focus on our 2024 guidance and reiterate Heath’s comments, the midpoint of our guidance range, risks the timing of well connections relative to what customers have provided. The low end risks, all of that even further, and the high end assumes customers hit their timing targets. We currently have five rigs behind the system and more than 140 DUCs, which represents approximately 70% of the expected well connections at the midpoint of the range.

And as Heath already mentioned, approximately 85% of those wells are from crude oil oriented and liquids rich gas oriented areas, which we view as favorable given the support of crude oil strip. Further that, of the dry gas oriented wells, approximately two-thirds of those wells are expected to be turn-in-line in the Barnett from a customer who has continued to run a rig and develop wells throughout 2023 including four new wells that have already been brought online in the first quarter of ’24. We believe this customer is less sensitive to natural gas prices given other infrastructure they have in the area. In the Northeast, we are currently expecting 55 to 75 well connects in 2024, which will keep volumes and adjusted EBITDA relatively flat from 2023 at the midpoint of our guidance range.

And as Heath mentioned, we did execute a new agreement with the second largest natural gas producer in Ohio, behind our OGC joint venture. We expect them to develop a handful of wells this year with more to follow in ’25. In the Rockies region, we are currently expecting 100 to 130 well connects in 2023, with 80 to 100 coming from the DJ and the remainder in the Williston. This level of activity will drive volume throughput growth in gas volumes and a modest volume decline in liquids throughput. We believe this slowdown in activity in the Williston is due primarily to third-party gas gathering constraints in the basin that should be alleviated towards the latter half of the year. And going forward, we would expect activity levels to be more in line with what we experienced in 2023.

We also aren’t terribly surprised to see some activity delays given some of the upstream M&A activity that occurred in mid to late 2023 up in the Williston. Quickly on the Piceance, we are expecting no new well connects in 2024, which will result in a modest decline in volume and EBITDA compared to 2023. Now to the Barnett, we are expecting 15 to 25 wells in 2024, which we expect will result in approximately 15% volume throughput growth relative to 2023. There is currently one rig running and 24 DUCs behind the system. Additionally, we have already turned-in-line four wells in the first quarter with more being drilled and completed as we speak. As I mentioned earlier, we currently estimate that there is $20 million a day of production shut-in behind the system that we are not expecting to turn back in line in 2024 and our current guidance is reflective of that at the midpoint and low end of the range.

Shifting to the Permian. We expect the first volume from our recently executed contract during the second quarter of 2024 when we expect that contract to step up to its 40 million a day take-or-pay commitment during the first half of 2025. The year-over-year expected EBITDA growth is primarily related to contractual step-ups in long-term take-or-pay contracts. Finally, I’ll spend some time discussing CapEx and the balance sheet. We are expecting to spend $20 million to $25 million in growth CapEx for 2024 and $10 million to $15 million of maintenance CapEx. The majority of growth CapEx for ’24 will be spent in the Rockies region where we have a number of pad connects given the amount of well connections expected for the year. And with $260 million to $300 million of expected adjusted EBITDA and $30 million to $40 million of total capital, we expect significant free cash flow generation and debt paydown throughout the course of the year.