Summit Midstream Partners, LP Reports Fourth Quarter and Full Year 2017 Financial Results and Provides 2018 Financial Guidance
THE WOODLANDS, Texas, Feb. 22, 2018 /PRNewswire/ -- Summit Midstream Partners, LP (NYSE: SMLP) announced today its financial and operating results for the three months and year ended December 31, 2017. SMLP reported a net loss of $18.3 million for the fourth quarter of 2017 compared to net income of $14.0 million for the prior-year period. Net income in the fourth quarter of 2017 included (i) a long-lived asset impairment of $187.1 million related to our Bison Midstream system in the Williston Basin segment and (ii) $145.6 million of non-cash income related to the decrease in the present value of the estimated Deferred Purchase Price Obligation ("DPPO") at December 31, 2017, compared to September 30, 3017. Net income for the fourth quarter of 2016 included $24.7 million of non-cash DPPO expense. Net cash provided by operations totaled $41.3 million in the fourth quarter of 2017 compared to $61.8 million in the prior-year period. Adjusted EBITDA totaled $72.9 million and distributable cash flow ("DCF") totaled $49.2 million for the fourth quarter of 2017 compared to $72.7 million and $52.8 million, respectively, for the prior-year period.
Natural gas volume throughput averaged 1,761 million cubic feet per day ("MMcf/d") in the fourth quarter of 2017, an increase of 17.1% compared to 1,504 MMcf/d in the prior-year period, and a decrease of 3.6% compared to 1,826 MMcf/d in the third quarter of 2017. SMLP's natural gas volume throughput metrics exclude its proportionate share of volume from its 40% ownership interest in Ohio Gathering. Crude oil and produced water volume throughput in the fourth quarter of 2017 averaged 74.1 thousand barrels per day ("Mbbl/d"), a decrease of 10.0% compared to 82.3 Mbbl/d in the prior-year period, and flat compared to 74.0 Mbbl/d in the third quarter of 2017.
Steve Newby, President and Chief Executive Officer, commented, "SMLP's financial and operating results for the fourth quarter of 2017 were in line with expectations. During the quarter, we announced a new 60 MMcf/d processing plant expansion in the DJ Basin and acquired strategically important rights-of-way in and around our northern Delaware Basin operating footprint. In addition, we strengthened our balance sheet with a $300.0 million issuance of perpetual preferred equity, which allowed us to reduce leverage by nearly 1.0x. The perpetual preferred equity offering allows the company to buildout its northern Delaware and DJ basin gathering systems and processing plants without any requirements to access the debt or equity capital markets in 2018."
SMLP reported net income of $86.1 million for the year ended December 31, 2017 compared to a net loss of $38.2 million for the prior-year period. Net income for 2017 included (i) $200.3 million of non-cash income related to the decrease in the present value of the estimated DPPO since December 31, 2016, (ii) long-lived asset impairments of $188.7 million, primarily related to our Bison Midstream system in the Williston Basin segment, (iii) $37.7 million related to a Williston Basin contract amendment that accelerated the recognition of deferred revenue on the balance sheet as gathering revenue on the income statement and (iv) $22.0 million of expense related to the early extinguishment of debt. Net income for 2016 included (i) $55.9 million of non-cash expense related to the increase in the present value of the estimated DPPO from March 3, 2016 to December 31, 2016 and (ii) a $37.8 million impairment loss, net to SMLP, recognized by Ohio Condensate Company, L.L.C. Net cash provided by operations totaled $237.8 million for the year ended December 31, 2017 compared to $230.5 million in the prior-year period. SMLP reported adjusted EBITDA of $290.4 million and DCF of $205.0 million for the year ended December 31, 2017 compared to $291.6 million and $210.9 million, respectively for the prior-year period. Natural gas volume throughput averaged 1,748 MMcf/d for the year ended December 31, 2017 compared to 1,528 MMcf/d in the prior-year period. Crude oil and produced water volume throughput averaged 75.2 Mbbl/d for the year ended December 31, 2017 compared to 88.9 Mbbl/d in the prior-year period.
2018 Financial Guidance
SMLP is announcing its 2018 financial guidance, which is summarized in the table below:
2018 Financial Guidance Range
-----------------------------
($ in millions) Low High
-------------- --- ----
Adjusted EBITDA $285 - $300
Capital Expenditures(1) $175 - $225
Maintenance Capital
Expenditures $15 - $20
Distribution Coverage
Ratio 0.95x - 1.05x
--------------------- ----- --- -----
(1) Includes maintenance capital
expenditures and capital
contributions to equity method
investees.
SMLP's 2018 adjusted EBITDA guidance includes approximately $8.0 million of incremental operating expense relative to 2017, related to a higher than normal level of compressor overhaul work and right-of-way repair expense in our Piceance/DJ and Ohio Gathering segments. We expect these costs will revert to more normal levels in 2019. In addition, we are estimating minimal adjusted EBITDA contribution from our northern Delaware and DJ basin natural gas gathering and processing projects in 2018, given the anticipated timing of project commissioning.
Capital expenditures in 2018 will primarily relate to the continued development of SMLP's northern Delaware Basin gathering and processing system, which is expected to be commissioned in June 2018, and the 60 MMcf/d expansion of SMLP's DJ Basin processing plant, which is expected to be commissioned in the fourth quarter of 2018. SMLP expects to fund its 2018 capital expenditures under its $1.25 billion revolving credit facility, which was partially repaid in the fourth quarter of 2017 with the net proceeds from the $300.0 million perpetual preferred equity offering.
Mr. Newby commented, "Due to the 2016 Drop Down payment mechanics, the estimated undiscounted amount of the DPPO was reduced by approximately $376.0 million in 2017 to $454.4 million at year end. This Deferred Payment structure is working as designed and is mitigating the negative financial impact to SMLP associated with our customers' measured pace of near-term development behind our Ohio Gathering and Utica Shale segments. We continue to expect significant growth in our Utica segments in 2019 and beyond. In addition, we expect our northern Delaware Basin and DJ expansion projects to begin to contribute meaningfully to SMLP's growth in 2019."
Fourth Quarter 2017 Segment Results
The following table presents average daily throughput by reportable segment:
Three months ended Year ended
December 31, December 31,
2017 2016 2017 2016
---- ---- ---- ----
Average
daily
throughput
(MMcf/
d):
Utica
Shale 369 211 365 186
Williston
Basin 19 17 19 22
Piceance/
DJ
Basins 575 615 595 586
Barnett
Shale 258 287 267 319
Marcellus
Shale 540 374 502 415
--- --- --- ---
Aggregate
average
daily
throughput 1,761 1,504 1,748 1,528
===== ===== ===== =====
Average
daily
throughput
(Mbbl/
d):
Williston
Basin 74.1 82.3 75.2 88.9
---- ---- ---- ----
Aggregate
average
daily
throughput 74.1 82.3 75.2 88.9
==== ==== ==== ====
Ohio
Gathering
average
daily
throughput
(MMcf/
d) (1) 825 848 766 865
=== === === ===
(1) Gross basis, represents 100% of volume throughput
for Ohio Gathering, based on a one-month lag.
Utica Shale
The Utica Shale reportable segment includes Summit Midstream Utica ("SMU"), SMLP's natural gas gathering system, which is currently in service and under development in Belmont and Monroe counties in southeastern Ohio. SMU gathers and delivers dry natural gas to interconnections with a third-party intrastate pipeline that provides access to the Clarington Hub.
Segment adjusted EBITDA for the fourth quarter of 2017 totaled $8.2 million, up 32.9% from $6.1 million for the prior-year period, primarily due to higher volume throughput, which averaged 369 MMcf/d in the fourth quarter of 2017 compared to 211 MMcf/d in the prior-year period and 403 MMcf/d in the third quarter of 2017. Volume throughput for the fourth quarter of 2017 increased relative to the prior-year period due to the completion of 15 new wells in 2017, including two new wells completed late in the fourth quarter of 2017. Relative to the prior-year period, SMU gathered incremental volume throughput in the fourth quarter of 2017 from the TPL-7 Connector Project, which was commissioned in the second quarter of 2017 and accounted for 48 MMcf/d in the fourth quarter of 2017, compared to no volumes in the prior-year period, and 74 MMcf/d in the third quarter of 2017. Volume throughput in the fourth quarter of 2017 was down 8.4% relative to the third quarter of 2017, primarily due to our customers temporarily shutting in producing wells throughout the quarter for simultaneous completion activities and maintenance-related work; we estimate that these temporary volume curtailments impacted SMU's fourth quarter 2017 volumes by approximately 25 MMcf/d. We expect that our customers will continue to implement temporary production curtailments throughout 2018, averaging approximately 10 MMcf/d, as they conduct simultaneous drilling activity on connected pad sites with producing wells.
Our customers currently have one drilling rig running on acreage behind the SMU system, and we have visibility for over 20 new wells behind the TPL-7 Connector Project in 2018, beginning late in the first quarter of 2018. We expect that our customers will operate an additional two drilling rigs behind the SMU system, beginning in the second quarter of 2018. We do not expect new wells from these two drilling rigs to begin flowing until the first quarter of 2019.
Ohio Gathering
The Ohio Gathering reportable segment includes our 40% ownership interest in Ohio Gathering, a natural gas gathering system spanning the condensate, liquids-rich and dry gas windows of the Utica Shale in Harrison, Guernsey, Noble, Belmont and Monroe counties in southeastern Ohio. This segment also includes our 40% ownership interest in Ohio Condensate, a condensate stabilization facility located in Harrison County, Ohio. Segment adjusted EBITDA for the Ohio Gathering segment includes our proportional share of adjusted EBITDA from Ohio Gathering and Ohio Condensate, based on a one-month lag.
Segment adjusted EBITDA for the fourth quarter of 2017 totaled $12.0 million, an increase of 15.5% from $10.4 million for the prior-year period, primarily due to lower operating expenses and incremental compression revenue, partially offset by lower volume throughput. Volume throughput on the Ohio Gathering system, which is based on a one-month lag, averaged 825 MMcf/d, gross, in the fourth quarter of 2017 compared to 848 MMcf/d, gross, in the prior-year period and 763 MMcf/d, gross, in the third quarter of 2017. Volume throughput in the fourth quarter of 2017 increased relative to the third quarter of 2017 due to the completion of 28 wells behind the system in the third and fourth quarters of 2017, including 7 new wells in the fourth quarter of 2017.
Our customers are currently running four drilling rigs in Ohio Gathering's operating footprint. We expect volume throughput on Ohio Gathering to be positively impacted by the completion of over 40 new wells throughout 2018, which we expect will begin in the second quarter of 2018. Relative to 2017, we expect higher operating expense in 2018 related to an increase in compressor overhaul work and right-of-way repair expense. We expect these expenses will revert to more normal levels in 2019.
Williston Basin
The Polar and Divide, Tioga Midstream and Bison Midstream systems provide our midstream services for the Williston Basin reportable segment. The Polar and Divide system gathers crude oil production in Williams and Divide counties in North Dakota and delivers to third-party intra- and interstate pipelines as well as third-party rail terminals. The Polar and Divide system also gathers and delivers produced water to various third-party disposal wells in the region. Tioga Midstream is a crude oil, produced water and associated natural gas gathering system in Williams County, North Dakota. All crude oil and natural gas gathered on the Tioga Midstream system is delivered to third-party pipelines, and all produced water is delivered to third-party disposal wells. Bison Midstream gathers associated natural gas production in Mountrail and Burke counties in North Dakota and delivers to third-party pipelines serving a third-party processing plant in Channahon, Illinois.
Segment adjusted EBITDA for the Williston Basin segment totaled $15.2 million for the fourth quarter of 2017 compared to $18.7 million for the prior-year period due to lower volume throughput and lower MVC shortfall payments. Liquids volumes averaged 74.1 Mbbl/d in the fourth quarter of 2017, a decrease of 10.0% from 82.3 Mbbl/d in the prior-year period and roughly flat compared to the third quarter of 2017.
Compared to the prior-year period, fourth quarter 2017 liquids volumes were impacted by natural volume declines, partially offset by 46 new wells in 2017, including 20 new wells late in the fourth quarter of 2017. Liquids volumes were also impacted by operational issues at third-party produced water disposal sites, as well as temporary crude oil production curtailments from certain customers implementing simultaneous completion activities on pad sites with flowing wells. For the fourth quarter of 2017, we estimate that these issues impacted our liquids volumes by nearly 8,000 Bbl/d. The majority of these upstream and downstream issues were resolved in January 2018.
Certain of our customers remain active across the Polar and Divide system, with two drilling rigs currently working. These rigs are adding to an existing backlog of approximately 39 drilled uncompleted wells ("DUCs") in inventory behind our Polar and Divide gathering system as of December 31, 2017. We expect volume growth to resume behind the Polar and Divide system beginning in the first quarter of 2018 and we expect sequential quarterly volume growth throughout 2018.
Associated natural gas volumes averaged 19 MMcf/d in the fourth quarter of 2017, an increase of 11.8% from 17 MMcf/d in the prior-year period and a decrease of 9.5% from 21 MMcf/d in the third quarter of 2017. Relative to the prior-year period, volume increases were primarily related a two-week suspension of gathering activities on the Bison Midstream system in the fourth quarter of 2016 due to scheduled maintenance on third-party, downstream midstream infrastructure. No new wells were connected during the quarter and we expect 12 new associated natural gas wells in 2018.
Piceance/DJ Basins
The Grand River and the Niobrara G&P systems provide our midstream services for the Piceance/DJ Basins reportable segment. These systems provide natural gas gathering and processing services for producers operating in the Piceance Basin located in western Colorado and eastern Utah and in the Denver-Julesburg ("DJ") Basin located in northeastern Colorado.
Segment adjusted EBITDA totaled $31.5 million for the fourth quarter of 2017, an increase of 4.5% from $30.1 million for the prior-year period, primarily due to increased volume throughput from the Niobrara G&P system and higher MVC shortfall payments, partially offset by lower volumes on the Grand River system and higher operating expense. Fourth quarter 2017 volume throughput averaged 575 MMcf/d, a decrease of 6.5% from 615 MMcf/d in the prior-year period and a decrease of 3.2% from 594 MMcf/d in the third quarter of 2017. Volume declines relative to the prior-year period were primarily due to natural declines from producing wells on the system, partially offset by the completion of 76 new wells in 2017, including 17 new wells in the fourth quarter of 2017. This activity was partially offset by the impact of our anchor customer's continued suspension of drilling activities behind our gathering system, and the resulting natural declines from existing production.
Certain of our customers remain active across our Piceance and DJ gathering systems with four drilling rigs currently working. We expect volume growth to resume in this segment beginning in the first quarter of 2018.
Barnett Shale
The DFW Midstream system provides our midstream services for the Barnett Shale reportable segment. This system gathers and delivers low-pressure natural gas received from pad sites, primarily located in southeastern Tarrant County, Texas, to downstream intrastate pipelines serving various natural gas hubs in the region.
Segment adjusted EBITDA for the Barnett Shale segment totaled $10.3 million for the fourth quarter of 2017, a decrease of 23.7% from $13.5 million for the prior-year period, primarily due to lower volume throughput, together with lower MVC shortfall payments. Volume throughput in the fourth quarter of 2017 averaged 258 MMcf/d, which was down 10.1% compared to the prior-year period average of 287 MMcf/d and up 1.6% from 254 MMcf/d in the third quarter of 2017. Volume throughput declined relative to the prior-year period, primarily due to natural production declines, partially offset by the commissioning of seven new wells late in the fourth quarter of 2017.
We have visibility towards our customers commissioning six new wells in the first quarter of 2018. We expect that certain of our customers will operate workover rigs and drilling rigs intermittently in the second and third quarters of 2018 with additional new well completions in the fourth quarter of 2018, resulting in relatively flat volume throughput compared to 2017.
Marcellus Shale
The Mountaineer Midstream system provides our midstream services for the Marcellus Shale reportable segment. This system gathers high-pressure natural gas received from upstream pipeline interconnections with Antero Midstream Partners, LP and Crestwood Equity Partners LP. Natural gas on the Mountaineer Midstream system is delivered to the Sherwood Processing Complex located in Doddridge County, West Virginia.
Segment adjusted EBITDA for the Marcellus Shale segment totaled $6.1 million for the fourth quarter of 2017, an increase of 31.5% from $4.6 million for the prior-year period, primarily due to an increase in volume throughput, partially offset by $0.3 million of higher operating expense related to repair work on certain rights-of-way. Volume throughput for this segment averaged 540 MMcf/d in the fourth quarter of 2017, an increase of 44.4% from 374 MMcf/d in the prior-year period and a decrease of 2.5% from 554 MMcf/d in the third quarter of 2017. Volume throughput growth relative to the prior-year period resulted from our customer completing 27 new wells behind our system in 2017, including 12 new wells in the fourth quarter of 2017.
There are no drilling rigs currently working behind our system. We expect our customer will complete nine new wells, currently in our customer's DUC inventory, beginning in the second quarter of 2018.
MVC Shortfall Payments
SMLP billed its customers $22.2 million in the fourth quarter of 2017 related to MVCs. For those customers that do not have credit banking mechanisms in their gathering agreements, or do not have the ability to use MVC shortfall payments as credits, the MVC shortfall payments are accounted for as gathering revenue in the period that they are earned. For the fourth quarter of 2017, SMLP recognized $23.3 million of gathering revenue associated with MVC shortfall payments from certain customers in the Williston Basin, Barnett Shale, Piceance/DJ Basins and Marcellus Shale reportable segments. Of this amount, $1.1 million is related to the deferred revenue recognition associated with a certain Piceance/DJ Basins segment customer that SMLP determined that it would be remote that this customer could ship volumes in excess of its future MVC as an offset to future gathering fees. As such, the customer's MVC credit bank, as represented as deferred revenue on the balance sheet, was reduced by $1.1 million and recognized as revenue on the income statement.
MVC shortfall payment adjustments in the fourth quarter of 2017 totaled ($7.1) million which was related to MVC shortfall payment adjustments from certain customers in the Piceance/DJ Basins, Williston Basin and Barnett Shale reportable segments.
SMLP's MVC shortfall payment mechanisms contributed $15.1 million of adjusted EBITDA in the fourth quarter of 2017.
Three months ended December 31, 2017
MVC Gathering Adjustments Net impact
Billings revenue to MVC to adjusted
shortfall EBITDA
payments
--------
(In thousands)
Net change in deferred
revenue related to MVC
shortfall payments:
Utica Shale $ - $ - $ - $ -
Williston Basin - - - -
Piceance/DJ Basins 3,082 4,169 (1,087) 3,082
Barnett Shale - - - -
Marcellus Shale - - - -
Total net change $3,082 $4,169 $(1,087) $3,082
------ ------ ------- ------
MVC shortfall payment
adjustments:
Utica Shale $ - $ - $ - $ -
Williston Basin 9,166 9,166 (5,946) 3,220
Piceance/DJ Basins 8,608 8,608 (870) 7,738
Barnett Shale 382 382 (284) 98
Marcellus Shale 1,007 1,007 - 1,007
Total MVC shortfall
payment adjustments $19,163 $19,163 $(7,100) $12,063
------- ------- ------- -------
Total (1) $22,245 $23,332 $(8,187) $15,145
======= ======= ======= =======
(1) Exclusive of Ohio Gathering due to equity method
accounting.
Year ended December 31, 2017
MVC Gathering Adjustments Net impact
Billings revenue to MVC to adjusted
shortfall EBITDA
payments
--------
(In thousands)
Net change in deferred
revenue related to MVC
shortfall payments:
Utica Shale $ - $ - $ - $ -
Williston Basin - 37,693 (37,693) -
Piceance/DJ Basins 13,106 16,171 (3,065) 13,106
Barnett Shale - - - -
Marcellus Shale - - - -
Total net change $13,106 $53,864 $(40,758) $13,106
------- ------- -------- -------
MVC shortfall payment
adjustments:
Utica Shale $ - $ - $ - $ -
Williston Basin 12,958 12,958 - 12,958
Piceance/DJ Basins 28,608 28,608 (3) 28,605
Barnett Shale 4,032 4,032 (612) 3,420
Marcellus Shale 4,398 4,398 - 4,398
Total MVC shortfall
payment adjustments $49,996 $49,996 $(615) $49,381
------- ------- ----- -------
Total (1) $63,102 $103,860 $(41,373) $62,487
======= ======== ======== =======
(1) Exclusive of Ohio Gathering due to equity method
accounting.
Capital Expenditures
Capital expenditures totaled $41.9 million in the fourth quarter of 2017, including $3.9 million of contributions to equity method investees, maintenance capital expenditures of approximately $4.0 million and approximately $5.0 million related to SMLP's acquisition of strategic rights-of-way located in the northern Delaware Basin. Development activities during the fourth quarter of 2017 were primarily related to the procurement and development of associated natural gas gathering and processing infrastructure in the northern Delaware Basin, as well as ongoing expansion of SMLP's gathering systems in the Utica Shale, Piceance/DJ Basins and Williston Basin segments.
Capital & Liquidity
As of December 31, 2017, SMLP had $261.0 million of outstanding debt under its $1.25 billion revolving credit facility and $989.0 million of available borrowing capacity, subject to covenant limits. Based upon the terms of SMLP's revolving credit facility and total outstanding debt of $1.06 billion (inclusive of $800.0 million of senior unsecured notes), SMLP's total leverage and senior secured leverage ratios (as defined in the credit agreement) as of December 31, 2017 were 3.62 to 1.0 and 0.89 to 1.0, respectively.
In November 2017, SMLP issued $300.0 million of 9.50% Series A Fixed-to-Floating Cumulative Redeemable Perpetual Preferred Units (the "Preferred Equity"), representing limited partner interests in SMLP. The net proceeds from this Preferred Equity were used to repay approximately $293.0 million of outstanding borrowings under SMLP's revolving credit facility.
Deferred Purchase Price Obligation
The consideration for the 2016 Drop Down consisted of (i) an initial $360.0 million cash payment (the "Initial Payment") which was funded on March 3, 2016 with borrowings under SMLP's revolving credit facility and (ii) a deferred payment which will be paid no later than December 31, 2020 (the "Deferred Purchase Price Obligation," "DPPO" or "Deferred Payment," as defined below). At the discretion of the board of directors of SMLP's general partner, the Deferred Payment can be made in either cash or SMLP common units, or a combination thereof.
The Deferred Payment will be equal to: (a) six-and-one-half (6.5) multiplied by the average Business Adjusted EBITDA of the 2016 Drop Down Assets for 2018 and 2019, less the G&A Adjuster, as defined in the Contribution Agreement; less (b) the Initial Payment; less (c) all capital expenditures incurred for the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019; plus (d) all Business Adjusted EBITDA from the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019, less the Cumulative G&A Adjuster, as defined in the Contribution Agreement.
The Deferred Payment calculation was designed to ensure that, during the deferral period, all of the EBITDA growth and capex development risk associated with the 2016 Drop Down Assets is held by the GP, Summit Investments. The Deferred Payment was structured such that SMLP will ultimately pay a 6.5x multiple of the actual EBITDA generated from the 2016 Drop Down Assets in 2018 and 2019.
SMLP reduced the estimated undiscounted amount of the Deferred Payment related to the 2016 Drop Down transaction from $656.5 million at September 30, 2017 to $454.4 million at December 31, 2017. The reduction is primarily related to updated Utica Shale well connection estimates in 2018 and 2019. The structure of the Deferred Payment insulates SMLP from this volume risk, and as a result, we have reduced the future obligation of SMLP.
A slower pace of growth capital expenditures, particularly in the Utica Shale, is also expected.
Quarterly Distribution
On January 25, 2018, the board of directors of SMLP's general partner declared a quarterly cash distribution of $0.575 per unit on all of its outstanding common units, or $2.30 per unit on an annualized basis, for the quarter ended December 31, 2017. This quarterly distribution remains unchanged from the previous quarter and from the quarter ended December 31, 2016. This distribution was paid on February 14, 2018, to unitholders of record as of the close of business on February 7, 2018.
Fourth Quarter 2017 Earnings Call Information
SMLP will host a conference call at 10:00 a.m. Eastern on Friday, February 23, 2018, to discuss its quarterly operating and financial results. Interested parties may participate in the call by dialing 847-585-4405 or toll-free 888-771-4371 and entering the passcode 46320995. The conference call will also be webcast live and can be accessed through the Investors section of SMLP's website at www.summitmidstream.com.
A replay of the conference call will be available until March 9, 2018 at 11:59 p.m. Eastern, and can be accessed by dialing 888-843-7419 and entering the replay passcode 46320995#. An archive of the conference call will also be available on SMLP's website.
Upcoming Investor Conferences
Members of SMLP's senior management team will participate in the Barclays Select Series: MLP Corporate Access Day in New York, New York, on February 27, 2018, and in the Morgan Stanley Utilities, Clean Tech and Midstream Energy Conference in New York, New York on February 28, 2018. The presentation materials associated with these events will be accessible through the Investors section of SMLP's website at www.summitmidstream.com prior to the beginning of each conference.
Use of Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). We also present adjusted EBITDA and distributable cash flow, each a non-GAAP financial measure. We define adjusted EBITDA as net income or loss, plus interest expense, income tax expense, depreciation and amortization, our proportional adjusted EBITDA for equity method investees, adjustments related to MVC shortfall payments, unit-based and noncash compensation, Deferred Purchase Price Obligation, early extinguishment of debt expense, impairments and other noncash expenses or losses, less interest income, income tax benefit, income (loss) from equity method investees and other noncash income or gains. We define distributable cash flow as adjusted EBITDA plus cash interest received and cash taxes received, less cash interest paid, senior notes interest adjustment, cash taxes paid and maintenance capital expenditures. Because adjusted EBITDA and distributable cash flow may be defined differently by other entities in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other entities, thereby diminishing their utility.
Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide external users of our financial statements, such as investors, commercial banks, research analysts and others, with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business.
Adjusted EBITDA and distributable cash flow are used as supplemental financial measures by external users of our financial statements such as investors, commercial banks, research analysts and others.
Adjusted EBITDA is used to assess:
-- the ability of our assets to generate cash sufficient to make cash
distributions and support our indebtedness;
-- the financial performance of our assets without regard to financing
methods, capital structure or historical cost basis;
-- our operating performance and return on capital as compared to those of
other entities in the midstream energy sector, without regard to
financing or capital structure;
-- the attractiveness of capital projects and acquisitions and the overall
rates of return on alternative investment opportunities; and
-- the financial performance of our assets without regard to (i) income or
loss from equity method investees, (ii) the impact of the timing of
minimum volume commitments shortfall payments under our gathering
agreements or (iii) the timing of impairments or other noncash income or
expense items.
Distributable cash flow is used to assess:
-- the ability of our assets to generate cash sufficient to make future
cash distributions and
-- the attractiveness of capital projects and acquisitions and the overall
rates of return on alternative investment opportunities.
Both of these measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. For example:
-- certain items excluded from adjusted EBITDA and distributable cash flow
are significant components in understanding and assessing an entity's
financial performance, such as an entity's cost of capital and tax
structure;
-- adjusted EBITDA and distributable cash flow do not reflect our cash
expenditures or future requirements for capital expenditures or
contractual commitments;
-- adjusted EBITDA and distributable cash flow do not reflect changes in,
or cash requirements for, our working capital needs; and
-- although depreciation and amortization are noncash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and adjusted EBITDA and distributable cash flow do not reflect
any cash requirements for such replacements.
We compensate for the limitations of adjusted EBITDA and distributable cash flow as analytical tools by reviewing the comparable GAAP financial measures, understanding the differences between the financial measures and incorporating these data points into our decision-making process. Reconciliations of GAAP to non-GAAP financial measures are attached to this press release.
We do not provide the GAAP financial measures of net income or loss or net cash provided by operating activities on a forward-looking basis because we are unable to predict, without unreasonable effort, certain components thereof including, but not limited to, (i) income or loss from equity method investees, (ii) deferred purchase price obligation and (iii) asset impairments. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated estimate and its impact on our GAAP performance and cash flow measures could vary materially based on a variety of acceptable management assumptions.
About Summit Midstream Partners, LP
SMLP is a growth-oriented 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 services pursuant to primarily long-term and fee-based gathering and processing agreements with customers and counterparties in five unconventional resource basins: (i) the Appalachian Basin, which includes the Marcellus and Utica shale formations in West Virginia and Ohio; (ii) the Williston Basin, which includes the Bakken and Three Forks shale formations in North Dakota; (iii) the Fort Worth Basin, which includes the Barnett Shale formation in Texas; (iv) the Piceance Basin, which includes the Mesaverde formation as well as the Mancos and Niobrara shale formations in Colorado and Utah; and (v) the Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in Colorado and Wyoming. SMLP is in the process of developing new gathering and processing infrastructure in a sixth basin, the Delaware Basin, in New Mexico. SMLP also owns substantially all of a 40% ownership interest in Ohio Gathering, which is developing natural gas gathering and condensate stabilization infrastructure in the Utica Shale in Ohio. SMLP is headquartered in The Woodlands, Texas, with regional corporate offices in Denver, Colorado, Atlanta, Georgia, Pittsburgh, Pennsylvania and Dallas, Texas.
About Summit Midstream Partners, LLC
Summit Midstream Partners, LLC ("Summit Investments") beneficially owns a 35.4% limited partner interest in SMLP and indirectly owns and controls the general partner of SMLP, Summit Midstream GP, LLC, which has sole responsibility for conducting the business and managing the operations of SMLP. Summit Investments is a privately held company controlled by Energy Capital Partners II, LLC, and certain of its affiliates. An affiliate of Energy Capital Partners II, LLC directly owns an 8.1% limited partner interest in SMLP.
Forward-Looking Statements
This press release includes certain statements concerning expectations for the future that are forward-looking within the meaning of the federal securities laws. Forward-looking statements contain known and unknown risks and uncertainties (many of which are difficult to predict and beyond management's control) that may cause SMLP's actual results in future periods to differ materially from anticipated or projected results. An extensive list of specific material risks and uncertainties affecting SMLP is contained in its 2016 Annual Report on Form 10-K as updated and superseded by the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 6, 2017, and as amended and updated from time to time. Any forward-looking statements in this press release are made as of the date of this press release and SMLP undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.
We do not provide the GAAP financial measures of net income or loss or net cash provided by operating activities on a forward-looking basis because we are unable to predict, without unreasonable effort, certain components thereof including, but not limited to, (i) income or loss from equity method investees, (ii) deferred purchase price obligation and (iii) asset impairments. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated estimate and its impact on our GAAP performance and cash flow measures could vary materially based on a variety of acceptable management assumptions.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
December 31,
------------
2017 2016
---- ----
(In thousands)
Assets
Current assets:
Cash and cash equivalents $1,430 $7,428
Accounts receivable 72,301 97,364
Other current assets 4,327 4,309
----- -----
Total current assets 78,058 109,101
Property, plant and equipment,
net 1,795,129 1,853,671
Intangible assets, net 301,345 421,452
Goodwill 16,211 16,211
Investment in equity method
investees 690,485 707,415
Other noncurrent assets 13,565 7,329
------ -----
Total assets $2,894,793 $3,115,179
========== ==========
Liabilities and Partners'
Capital
Current liabilities:
Trade accounts payable $16,375 $16,251
Accrued expenses 12,499 11,389
Due to affiliate 1,088 258
Deferred revenue 4,000 -
Ad valorem taxes payable 8,329 10,588
Accrued interest 12,310 17,483
Accrued environmental
remediation 3,130 4,301
Other current liabilities 11,258 11,471
------ ------
Total current liabilities 68,989 71,741
Long-term debt 1,051,192 1,240,301
Deferred Purchase Price
Obligation 362,959 563,281
Deferred revenue 12,707 57,465
Noncurrent accrued environmental
remediation 2,214 5,152
Other noncurrent liabilities 7,063 7,566
----- -----
Total liabilities 1,505,124 1,945,506
Series A Preferred Units 294,426 -
Common limited partner capital 1,056,510 1,129,132
General Partner interests 27,920 29,294
Noncontrolling interest 10,813 11,247
------ ------
Total partners' capital 1,389,669 1,169,673
--------- ---------
Total liabilities and partners'
capital $2,894,793 $3,115,179
========== ==========
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Year ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(In thousands, except per-unit amounts)
Revenues:
Gathering services and related
fees $95,543 $111,378 $394,427 $345,961
Natural gas, NGLs and
condensate sales 23,804 10,086 68,459 35,833
Other revenues 6,852 5,619 25,855 20,568
----- ----- ------ ------
Total revenues 126,199 127,083 488,741 402,362
------- ------- ------- -------
Costs and expenses:
Cost of natural gas and NGLs 20,909 7,281 57,237 27,421
Operation and maintenance 23,871 23,023 93,882 95,334
General and administrative 14,311 14,287 54,681 52,410
Depreciation and amortization 29,291 28,569 115,475 112,239
Transaction costs (46) 25 73 1,321
(Gain) Loss on asset sales, net (3) 69 527 93
Long-lived asset impairment 187,125 23 188,702 1,764
------- --- ------- -----
Total costs and expenses 275,458 73,277 510,577 290,582
------- ------ ------- -------
Other income 84 24 298 116
Interest expense (16,248) (16,160) (68,131) (63,810)
Early extinguishment of debt (19) - (22,039) -
Deferred Purchase Price
Obligation 145,648 (24,738) 200,322 (55,854)
------- ------- ------- -------
(Loss) income before income
taxes and income (loss) from
equity method investees (19,794) 12,932 88,614 (7,768)
Income tax benefit (expense) 76 66 (341) (75)
Income (loss) from equity
method investees 1,468 997 (2,223) (30,344)
----- --- ------ -------
Net (loss) income $(18,250) $13,995 $86,050 $(38,187)
======== ======= ======= ========
Earnings (loss) per limited
partner unit:
Common unit - basic $(0.32) $0.16 $0.99 $(0.71)
Common unit - diluted $(0.32) $0.16 $0.98 $(0.71)
Weighted-average limited
partner units outstanding:
Common units - basic 73,068 72,096 72,705 68,264
Common units - diluted 73,068 72,096 73,047 68,264
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED OTHER FINANCIAL AND OPERATING DATA
Three months ended Year ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(Dollars in thousands)
Other financial data:
Net (loss) income $(18,250) $13,995 $86,050 $(38,187)
Net cash provided
by operating
activities $41,335 $61,790 $237,832 $230,495
Capital
expenditures $38,009 $19,984 $124,215 $142,719
Contributions to
equity method
investees $3,932 $11,425 $25,513 $31,582
Acquisitions of
gathering systems
(1) $ - $ - $ - $866,858
Adjusted EBITDA $72,923 $72,721 $290,387 $291,601
Distributable cash
flow $49,173 $52,802 $205,010 $210,906
Distributions
declared (2) $45,054 $44,452 $179,705 $170,981
Distribution
coverage ratio
(3) 1.09x 1.19x 1.14x 1.23x
Operating data:
Aggregate average daily
throughput - natural gas
(MMcf/d) 1,761 1,504 1,748 1,528
Aggregate average daily
throughput - liquids (Mbbl/
d) 74.1 82.3 75.2 88.9
Ohio Gathering
average daily
throughput (MMcf/
d) (4) 825 848 766 865
(1) Reflects cash and noncash consideration, including
working capital and capital expenditure adjustments
paid (received), for acquisitions and/or drop downs.
(2) Represents distributions declared to common
unitholders in respect of a given period. For
example, for the three months ended December 31,
2017, represents the distributions paid in February
2018.
(3) Distribution coverage ratio calculation for the
three months ended December 31, 2017 and 2016 is
based on distributions declared to common unitholders
in respect of the fourth quarter of 2017 and 2016.
Represents the ratio of distributable cash flow to
distributions declared.
(4) Gross basis, represents 100% of volume throughput
for Ohio Gathering, based on a one-month lag.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF REPORTABLE SEGMENT ADJUSTED EBITDA
TO ADJUSTED EBITDA
Three months ended Year ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(In thousands)
Reportable segment
adjusted EBITDA (1):
Utica Shale $8,154 $6,137 $34,011 $21,035
Ohio Gathering (2) 12,045 10,429 41,246 45,602
Williston Basin 15,237 18,730 66,413 79,475
Piceance/DJ Basins 31,481 30,121 117,737 109,241
Barnett Shale 10,308 13,516 46,232 54,634
Marcellus Shale 6,113 4,649 23,888 19,203
----- ----- ------ ------
Total $83,338 $83,582 $329,527 $329,190
Less Corporate and other
(3) 10,415 10,861 39,140 37,589
------ ------ ------ ------
Adjusted EBITDA $72,923 $72,721 $290,387 $291,601
======= ======= ======== ========
(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)
unit-based and noncash compensation, (vi) change in
the Deferred Purchase Price Obligation, (vii) early
extinguishment of debt expense, (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, based on 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) Corporate and other represents those results that
are not specifically attributable to a reportable
segment or that have not been allocated to our
reportable segments, including certain general and
administrative expense items, natural gas and crude
oil marketing services, transaction costs, interest
expense, early extinguishment of debt and a change in
the Deferred Purchase Price Obligation.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED RECONCILIATIONS TO NON-GAAP FINANCIAL MEASURES
Three months ended Year ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(In thousands)
Reconciliations of net income or
loss to adjusted EBITDA and
distributable cash flow:
Net (loss) income $(18,250) $13,995 $86,050 $(38,187)
Add:
Interest expense 16,248 16,160 68,131 63,810
Income tax (benefit) expense (76) (66) 341 75
Depreciation and amortization (1) 29,140 28,603 114,872 112,661
Proportional adjusted EBITDA for
equity method investees (2) 12,045 10,429 41,246 45,602
Adjustments related to MVC
shortfall payments (3) (8,187) (22,218) (41,373) 11,600
Unit-based and noncash compensation 1,978 1,985 7,951 7,985
Deferred Purchase Price Obligation
(4) (145,648) 24,738 (200,322) 55,854
Early extinguishment of debt (5) 19 - 22,039 -
(Gain) loss on asset sales, net (3) 69 527 93
Long-lived asset impairment 187,125 23 188,702 1,764
Less:
Income (loss) from equity method
investees 1,468 997 (2,223) (30,344)
----- --- ------ -------
Adjusted EBITDA $72,923 $72,721 $290,387 $291,601
======= ======= ======== ========
Add:
Cash taxes received - - - 50
Less:
Cash interest paid 24,078 5,783 71,488 63,000
Senior notes interest adjustment
(6) (7,855) 9,750 (5,261) -
Distributions to Series A Preferred
unitholders (7) 2,375 - 2,375 -
Series A Preferred units
distribution adjustment (8) 1,188 - 1,188 -
Maintenance capital expenditures 3,964 4,386 15,587 17,745
----- ----- ------ ------
Distributable cash flow $49,173 $52,802 $205,010 $210,906
======= ======= ======== ========
Distributions declared (9) $45,054 $44,452 $179,705 $170,981
======= ======= ======== ========
Distribution coverage ratio (10) 1.09x 1.19x 1.14x 1.23x
===== ===== ===== =====
(1) Includes the amortization expense associated with our
favorable and unfavorable gas gathering contracts as reported
in other revenues.
(2) Reflects our proportionate share of Ohio Gathering
adjusted EBITDA, based on a one-month lag.
(3) Adjustments related to MVC shortfall payments account for
(i) the net increases or decreases in deferred revenue for
MVC shortfall payments and (ii) our inclusion of expected
annual MVC shortfall payments.
(4) Deferred Purchase Price Obligation represents the change
in the present value of the Deferred Purchase Price
Obligation.
(5) Early extinguishment of debt includes $17.9 million paid
for redemption and call premiums, as well as $4.1 million of
unamortized debt issuance costs which were written off in
connection with the repurchase of the outstanding $300.0
million 7.5% Senior Notes in the first quarter of 2017.
(6) Senior notes interest adjustment represents the net of
interest expense accrued and paid during the period. Interest
on the $300.0 million 5.5% senior notes is paid in cash semi-
annually in arrears on February 15 and August 15 until
maturity in August 2022. Interest on the $500.0 million
5.75% senior notes is paid in cash semi-annually in arrears
on April 15 and October 15, beginning October 15, 2017 until
maturity in April 2025.
(7) Distributions on the Series A preferred units are paid in
cash semi-annually in arrears on June 15 and December 15
each year, beginning on December 15, 2017 through and
including December 15, 2022, and, thereafter, quarterly in
arrears on the 15th day of March, June, September and
December of each year.
(8) Series A Preferred unit distribution adjustment represents
the distributions accrued on the Series A preferred units.
(9) Represents distributions declared to common unitholders in
respect of a given period. For example, for the three months
ended December 31, 2017, represents the distributions paid in
February 2018.
(10) Distribution coverage ratio calculation for the three
months ended December 31, 2017 and 2016 is based on
distributions declared in respect of the fourth quarter of
2017 and 2016. Represents the ratio of distributable cash
flow to distributions declared.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED RECONCILIATIONS TO NON-GAAP FINANCIAL MEASURES
Year ended December 31,
-----------------------
2017 2016
---- ----
Reconciliation of net cash
provided by operating activities
to adjusted EBITDA and
distributable cash flow:
Net cash provided by operating
activities $237,832 $230,495
Add:
Interest expense, excluding
amortization of debt issuance
costs 63,973 59,834
Income tax expense 341 75
Changes in operating assets and
liabilities 28,890 (11,014)
Proportional adjusted EBITDA for
equity method investees (1) 41,246 45,602
Adjustments related to MVC
shortfall payments (2) (41,373) 11,600
Less:
Distributions from equity method
investees 40,220 44,991
Write-off of debt issuance costs 302 -
--- ---
Adjusted EBITDA $290,387 $291,601
======== ========
Add:
Cash taxes received - 50
Less:
Cash interest paid 71,488 63,000
Senior notes interest adjustment
(3) (5,261) -
Distributions to Series A
Preferred unitholders (4) 2,375 -
Series A Preferred units
distribution adjustment (5) 1,188 -
Maintenance capital expenditures 15,587 17,745
------ ------
Distributable cash flow $205,010 $210,906
======== ========
(1) Reflects our proportionate share of Ohio Gathering
adjusted EBITDA, based on a one-month lag.
(2) Adjustments related to MVC shortfall payments
account for (i) the net increases or decreases in
deferred revenue for MVC shortfall payments and (ii)
our inclusion of expected annual MVC shortfall
payments.
(3) Senior notes interest adjustment represents the
net of interest expense accrued and paid during the
period. Interest on the $300.0 million 5.5% senior
notes is paid in cash semi-annually in arrears on
February 15 and August 15 until maturity in August
2022. Interest on the $500.0 million 5.75% senior
notes is paid in cash semi-annually in arrears on
April 15 and October 15, beginning October 15, 2017
until maturity in April 2025.
(4) Distributions on the Series A preferred units are
paid in cash semi-annually in arrears on June 15 and
December 15 each year, beginning on December 15, 2017
through and including December 15, 2022, and,
thereafter, quarterly in arrears on the 15th day of
March, June, September and December of each year.
(5) Series A Preferred unit distribution adjustment
represents the distributions accrued on the Series A
preferred units.
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SOURCE Summit Midstream Partners, LP
