Summit Midstream Partners, LP (SMLP) ("Summit", "SMLP") announced its financial and operating results for fourth quarter and full-year 2022 and provided
full-year 2023 financial guidance.
- Generated fourth quarter 2022 net loss of $23.9 million, adjusted EBITDA of $50.3 million, cash flow available for distributions ("Distributable Cash Flow" or "DCF") of $20.2 million and free cash flow ("FCF") of $11.8 million
- Fourth quarter 2022 results include $4 million of severe weather outages and unusual expenses
- Generated adjusted EBITDA of $212.3 million and FCF of $73.5 million in 2022, exceeding the mid-point of our original guidance range
- Executed four highly strategic, value- and credit-enhancing acquisitions and divestitures, most recently closing on the DJ Basin acquisitions on December 1, 2022
- Provided 2023 adjusted EBITDA guidance of $290 million to $320 million, representing approximately 40%1 year-over-year expected growth
- Expect to de-lever the balance sheet towards an approximately 4.35x leverage ratio by year end1
Heath Deneke, President, Chief Executive Officer and Chairman, commented, "Summit delivered solid financial and operating results in 2022, and we made outstanding progress executing our corporate strategy to high-grade our portfolio of assets and increase our scale in a balance sheet enhancing manner. We exceeded the mid-point of our Adjusted EBITDA guidance range for the year, despite incurring approximately $4 million of weather-related and unusual expenses in the fourth quarter. During the year, we sold our Lane Gathering and Processing System and Bison Gas System for more than a 15x combined EBITDA multiple and reinvested those proceeds in the fourth quarter to build a strong franchise position in the DJ Basin with the acquisition of the Outrigger DJ and Sterling systems. The Outrigger DJ and Sterling systems have been successfully integrated with our Hereford operations and both Summit and our DJ customers are already realizing the benefits of operating a combined super-system in the basin. We estimate a full quarter's contribution from the DJ Acquisitions would have increased Adjusted EBITDA by approximately $8 million in the fourth quarter 2022. We have also maintained strong momentum across our operating footprint heading into 2023 with 12 customer rigs running behind our systems and more than 235 DUCs accumulated to date."
"For 2023, we are setting an adjusted EBITDA guidance range of $290 million to $320 million with total growth and maintenance capital expenditures of $45 million to $65 million. After normalizing for acquisitions and divestitures in 2022, the midpoint of our guidance range reflects approximately 15% year-over-year growth in adjusted EBITDA and a resumption of drilling and completion activity that is much more in line with our longer-term expectations for our business. We expect to continue to de-lever the balance sheet towards an approximate 4.35x leverage ratio by year end1. We also remain very optimistic about our opportunity set to further execute on strategic and credit-accretive acquisitions and divestitures, commercializing Double E, and capturing new commercial opportunities in the DJ and other core basins that will take advantage of the capacity behind our operating systems."
Fourth Quarter 2022 Business Highlights
SMLP's average daily natural gas throughput for its wholly owned operated systems decreased by 29 MMcf/d to 1,148 MMcf/d, and liquids volumes decreased by 2 Mbbl/d to 64 Mbbl/d, relative to the third quarter of 2022. The decline in natural gas volumes was due to the Bison Midstream divestiture in September 2022, which contributed 12 MMcf/d in the third quarter of 2022. OGC natural gas throughput decreased from 783 MMcf/d to 754 MMcf/d and generated $8.2 million of adjusted EBITDA net to SMLP for the fourth quarter of 2022. Double E Pipeline gross volumes transported declined by 25 MMcf/d to 289 MMcf/d and generated $3.4 million of adjusted EBITDA net to SMLP for the fourth quarter of 2022. Additionally, we incurred approximately $3 million of unusual compensation related expenses during the fourth quarter.
Natural gas-price driven segments:
- Natural gas price-driven segments had combined quarterly segment adjusted EBITDA of $41.0 million and combined capital expenditures of $3.1 million in the fourth quarter of 2022.
- Northeast segment adjusted EBITDA of $19.1 million decreased by $0.3 million from the third quarter of 2022, primarily due to a 6.0% decline in volume on our wholly owned systems, partially offset by a $0.5 million increase in proportional EBITDA from our OGC joint venture. The increase in proportional EBITDA was due to favorable margin mix and lower operating expenses, partially offset by a 3.7% decline in volume. Six new wells were brought online behind the TPL-7 connection of our wholly owned SMU system in November 2022 and eight new wells were connected behind our OGC joint venture during the quarter. There are currently four rigs running, including two rigs behind on our wholly owned SMU system, and more than 40 DUCs behind the OGC, SMU and MTN systems.
- Piceance segment adjusted EBITDA of $14.7 million increased by $0.4 million from the third quarter of 2022, primarily due to a $0.7 million decrease in operating expenses, partially offset by 3.3% of natural production declines from the prior quarter. There is currently one rig running and 17 wells that started coming online in late February 2023.
- Barnett segment adjusted EBITDA of $7.2 million decreased by $0.6 million relative to the third quarter of 2022, primarily due to a $0.3 million decrease in retainage natural gas sales and $0.7 million increase in direct operating expenses. Volume throughput on the system increased by 3.9% due to 8 wells connected to the system during the second half of 2022. There are currently three rigs running and 13 DUCs behind the system.
Oil price-driven segments
- Oil price-driven segments generated $18.0 million of combined segment adjusted EBITDA in the fourth quarter of 2022 and had combined capital expenditures of $6.8 million.
- Permian segment adjusted EBITDA of $4.2 million decreased by $0.7 million from the third quarter of 2022, primarily due to a 7.9% decline in Double E gross volume throughput from the prior quarter due to unfavorable natural gas prices at Waha.
- Rockies segment adjusted EBITDA of $13.8 million decreased $0.4 million relative to the third quarter of 2022, primarily due to weather-related interruptions during December and the sale of Bison in September 2022, partially offset by the addition of the Outrigger DJ and Sterling assets that closed in December 2022. We estimate the winter storm negatively impacted gross margin by approximately $1.0 million during the quarter. In addition, there were several completions that were delayed during the quarter, with 19 crude oil wells connected late in the fourth quarter, relative to our previous expectation of 40 wells connected during the quarter. Crude oil volumes were flat, while produced water volumes declined 9.3% relative to the third quarter. There are currently two rigs running and more than 150 DUCs behind the systems.
Capital expenditures totaled $10.6 million in the fourth quarter of 2022 and $31.5 million for calendar year 2022, inclusive of maintenance capital expenditures of $3.8 million and $11.0 million, respectively. Capital expenditures in the fourth quarter of 2022 were primarily related to growth projects to connect new pad sites in our Northeast and Rockies segments.
SMLP is releasing guidance for 2023, 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 this release.
Our guidance range is anchored by recent drilling and completion schedules provided by our customers and is reflective of the current commodity price environment. We have taken a consistent approach to our 2023 guidance range that we did with our 2022 guidance range. If our producer customers hit their production targets and timing of planned well connects, we would expect to be near the high end of our 2023 guidance range. The midpoint of our guidance range reflects a conservative, yet appropriate, level of risking to the most recent drill schedules and volume forecasts provided by our customers. The low end of our guidance range reflects additional delays to customer drilling and completion schedules and planned well connects.
We expect approximately 295 to 365 well connections in 2023, which is in line with pre-COVID levels and Summit's expectations for activity levels in a normalized commodity price environment. Of the expected well connections in 2023, approximately 15% are dry-gas oriented wells, approximately 35% are liquids-rich gas-oriented wells and approximately 50% are crude-oil oriented wells. Customers are currently running 12 rigs behind our systems, with more than 235 DUCs, providing line of sight to the 2023 estimated well connections and associated volume growth.
We expect our wholly owned natural gas gathering system throughput to range from 1,340 MMcf/d to 1,430 MMcf/d, representing approximately 15% growth at the mid-point of the guidance range relative to 2022, with growth expected behind each of our systems. OGC gross volume throughput is expected to range from 775 MMcf/d to 825 MMcf/d, as compared to 674 MMcf/d in 2022 and 754 MMcf/d in the fourth quarter 2022, representing approximately 19% year-over-year growth at the mid-point of the guidance range. Double E volume throughput is expected to be approximately 325 MMcf/d, relative to existing take-or-pay contracts of 810 MMcf/d, and contractually increasing to 985 MMcf/d beginning in November 2023. Liquids volumes are expected to range from 85 Mbbl/d to 95 Mbbl/d, primarily due to 70 to 80 new well connections expected during the year, including 7 new well connections from a key customer to whom we provide both crude oil and produced water gathering services.
Adjusted EBITDA is expected to range from $290 million to $320 million, representing more than 40% year-over-year growth. Our 2023 capital expenditure guidance of $45 million to $65 million, excluding Double E, includes capital reimbursements related to specific development projects with certain customers. Our full year 2023 growth capex guidance range is expected to be directed mostly towards new pad connections in the Rockies segment and includes approximately $10 million to $15 million of one-time integration and optimization projects behind the Rockies segment. Included in this range is approximately $10 million to $15 million of maintenance capex.
Capital & Liquidity
As of December 31, 2022, SMLP had $11.8 million in unrestricted cash-on-hand and $330 million drawn under its $400 million ABL Revolver and $64.1 million of borrowing availability, after accounting for $5.9 million of issued, but undrawn, letters of credit. As of December 31, 2022, SMLP's gross availability based on the borrowing base calculation in the credit agreement was $561 million, which is $161 million greater than the $400 million of lender commitments to the ABL Revolver. As of December 31, 2022 SMLP was in compliance with all financial covenants, including interest coverage of 2.52x relative to a minimum interest coverage covenant of 2.0x and first lien leverage ratio of 1.31x relative to a maximum first lien leverage ratio of 2.5x. As of December 31, 2022, SMLP reported a total leverage ratio of approximately 5.5x.
As of December 31, 2022, the Permian Transmission Credit Facility balance was $155.4 million, a reduction of $4.6 million relative to the December 31, 2021 balance of $160.0 million due to scheduled mandatory amortization. The Permian Transmission Term Loan remains non-recourse to SMLP.
MVC Shortfall Payments
SMLP billed its customers $16.9 million in the fourth quarter of 2022 related to MVC shortfalls. For those customers that do not have MVC shortfall credit banking mechanisms in their gathering agreements, the MVC shortfall payments are accounted for as gathering revenue in the period in which they are earned. In the fourth quarter of 2022, SMLP recognized $10.2 million of gathering revenue associated with MVC shortfall payments. SMLP had no adjustments to MVC shortfall payments in the fourth quarter of 2022. SMLP's MVC shortfall payment mechanisms contributed $10.2 million of total adjusted EBITDA in the fourth quarter of 2022 and $40.5 million of total adjusted EBITDA for full year 2022.
The board of directors of SMLP's general partner continued to suspend cash distributions payable on its common units and on its Series A fixed-to-floating rate cumulative redeemable perpetual preferred units (the "Series A Preferred Units") for the period ended December 31, 2022. Unpaid distributions on the Series A Preferred Units will continue to accumulate.