Summit Midstream Partners (SMLP) Tops Q2 EPS by 76c, Revenues Miss

Summit Midstream Partners (NYSE: SMLP) reported Q2 EPS of $1.06, $0.76 better than the analyst estimate of $0.30. Revenue for the quarter came in at $92.01 million versus the consensus estimate of $100.08 million.

Heath Deneke, President, Chief Executive Officer and Chairman, commented, "Our industry continued to face a number of headwinds in the second quarter of 2020, with oil prices briefly turning negative for the first time in history, the commencement of temporary production shut-ins, deferred drilling and completion activities, upstream bankruptcy filings and impacts from the ongoing COVID-19 pandemic. With this backdrop, we experienced quarter-over-quarter volume throughput declines across all our segments except for our Utica Shale segment, which increased by approximately 87.4% relative to the first quarter of 2020, mainly due to the outperformance of new wells connected in March. We began to experience production curtailments from certain customers, predominantly in our liquids-focused basins during the first two months of the quarter; however, with the improvement and relative stabilization of crude oil prices in the $40 per barrel area, some shut-in wells started to come back online late in the quarter. We also recently amended two gathering contracts with key Williston Basin customers that we expect to become effective in the third quarter of 2020. Although the specific terms of each customer contract differ, both amendments extended the term of the gathering agreement acreage dedication in exchange for a modest gathering fee concession. In June, we experienced production shut-ins on certain pads in our Utica Shale segment that we expect will continue through late into the fourth quarter of 2020, when natural gas prices are expected to increase and our customers can capture better margins. These shut-ins were unexpected and included the five-well pad that had outperformed expectations early in the second quarter. In light of these actions, on July 23, 2020, we revised our full year 2020 adjusted EBITDA guidance range to $250 million to $260 million, which is down marginally from our previous guidance of the low end of our $260 million to $285 million guidance range that was disclosed in May."

"We remain committed to strengthening the balance sheet, enhancing financial flexibility and focusing on initiatives that are within our control, such as maintaining a lean cost structure, employing capital discipline and operating safely and responsibly. The GP Buy-In transaction represented a major step forward in our comprehensive liability management strategy, and was an important step in our ongoing initiative to strengthen the balance sheet because it facilitated the reallocation of $76 million per year of cash from equity distributions to de-leveraging initiatives, while providing the flexibility to continue optimizing our capital structure in a manner that is fully aligned with the interests of our public common unitholders. Immediately after closing the GP Buy-In transaction on May 28, 2020, we began repurchasing our senior notes in the open market. Our debt repurchase initiative has been successful in a relatively short timeframe, and we have repurchased $137.9 million of face value of aggregate senior notes at a weighted average discount of 42% as of August 6, 2020. In addition, on June 18, 2020, we launched an offer to exchange our Series A Preferred Units ("Preferred Units") for common units (the "Exchange Offer") because there was an opportunity to structure a transaction that could provide value across SMLP's capital structure. Upon closing the Exchange Offer, we retired $62.8 million face value of Preferred Units, representing 21% of the initial 300,000 preferred units outstanding, at an 84% discount to face value based on the $0.80 SMLP common unit closing price on July 31, 2020. We provided value to our common unitholders by retiring Preferred Units below face value and afforded participating Preferred Unit holders enhanced liquidity via our common units, all while preserving cash for other strategic initiatives, since only common units were offered as consideration. We expect to continue to employ our comprehensive liability management strategy over the coming quarters and will consider the entire gamut of options available to us. We plan on working with our revolving credit facility lenders to develop the tools and flexibility needed to reposition the balance sheet and we will continue to focus on potential asset divestitures and joint ventures of certain of our Legacy and Core Focus Areas. I'm proud of the progress our team has made on enhancing our balance sheet to date; however, there are still many remaining opportunities to pursue."

"There have been several positive developments regarding the Double E Pipeline project, which represents a critical infrastructure need for the northern Delaware Basin. We have been pursuing opportunities to reduce costs without sacrificing quality, safety or timeline of the project, and I'm pleased to announce that we have locked-in approximately 80% of expected development capital expenditures, which includes pipe costs, pipeline construction and substantially all of the privately-owned rights-of-way. We now expect SMLP's 70% aggregate share of the Double E Pipeline project development capital to be $315 million, which is an approximate 10% reduction relative to the original $350 million expectation that was developed at FID in June 2019. We continue to progress third party financing options for the majority of SMLP's remaining share of capital expenditures and expect to finalize an agreement in the third quarter of 2020 in connection with the receipt of our FERC 7(c) certificate. Utilizing third-party capital to finance Double E will allow SMLP to retain cash for other strategic initiatives, including continued debt reduction and repositioning of SMLP's balance sheet."

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