Summit Midstream(SMLP) - 2022 Q4 - Annual Report

Acquisitions and Capital Management - Summit Midstream Partners completed strategic acquisitions in the DJ Basin for a total of $305.0 million, enhancing gas processing capacity and diversifying the customer base[40] - The company funded its recent acquisitions through borrowings under its credit facility and the issuance of $85.0 million in Senior Secured Second Lien Notes due in 2026[40] - The strategic focus includes capital management through opportunistic divestitures and reallocating capital to new or existing areas[40] - The company completed the divestiture of Summit Permian for $75.0 million and Bison Midstream for $40.0 million in 2022, optimizing its portfolio[15][16] Revenue and Cash Flow Stability - Summit Midstream focuses on maintaining fee-based revenue with minimal direct commodity price exposure to ensure stable cash flows[40] - Approximately 18% of total revenues in 2022 were derived from activities exposed to commodity price fluctuations[55] - The company relies on a small number of customers for significant revenue, with the top five customers accounting for 26% of total accounts receivable as of December 31, 2022[151] - The company’s cash distribution capabilities are influenced by various factors, including capital expenditures, debt service requirements, and market conditions[160] Operational Efficiency and Asset Management - The company emphasizes strong producer relationships to maximize utilization of midstream assets and create future expansion opportunities[40] - Summit Midstream's midstream assets primarily gather natural gas and crude oil, providing gathering and transmission services to downstream pipelines[42] - The company operates in key production basins including the Williston Basin, DJ Basin, Utica Shale, Marcellus Shale, Barnett Shale, Piceance Basin, and Permian Basin[39] - The company’s operations are concentrated in specific basins, including the Utica Shale and Permian Basin, making it vulnerable to adverse developments in these areas[158] Regulatory Compliance and Environmental Impact - The company must comply with stringent environmental laws, which can impose significant costs for compliance and remediation[113] - The DOT has expanded its regulatory authority to include gathering lines, requiring compliance with safety standards and integrity management programs[107] - Recent PHMSA rules require integrity assessments for pipelines in moderate consequence areas, extending beyond high consequence areas[110] - The company is subject to fines of up to approximately $1.5 million per day per violation of the NGA and NGPA, with potential adjustments for inflation[106] Financial Challenges and Debt Management - The company has suspended distributions on common units and Series A Preferred Units since May 3, 2020, with accrued unpaid distributions on Series A Preferred Units totaling $21.5 million as of December 31, 2022[205] - The company faces significant challenges in obtaining financing due to general economic conditions and increasing disfavor towards investments in fossil fuel companies[204] - The company may face liquidity problems if unable to generate sufficient cash flows to service its debt obligations[208] - The company has significant restrictions on its ability to incur additional debt or make certain cash distributions due to covenants in its debt agreements[215] Market and Commodity Price Risks - A decline in natural gas prices was observed, with the Henry Hub Natural Gas Spot Price dropping from an average of $8.81 per MMBtu in August 2022 to $3.52 per MMBtu by December 30, 2022[160] - Significant prolonged weakness in commodity prices could reduce throughput and adversely affect cash distributions to unitholders[160] - Future acquisitions or developments of midstream assets may increase exposure to commodity price risks, affecting business operations[228] - The company’s ability to maintain throughput levels is dependent on successful drilling activity and competition for new volumes[161] Employee and Operational Considerations - As of December 31, 2022, the company employed 252 full-time employees, with no employees covered by collective bargaining agreements[143] - The company prioritizes safe and reliable operations, emphasizing employee training and operational efficiency[40] - Integration of gathering system acquisitions may be complex and time-consuming, potentially impacting future results of operations[187] - Interruptions in operations at any facilities could adversely affect cash flows available for distribution to unitholders[179] Economic and Inflationary Pressures - Inflation in the United States rose from 5.4% in June 2021 to 6.5% as of December 31, 2022, with expectations of further increases in 2023[220] - The company may face increased labor and operating costs due to inflation, potentially impacting profitability and cash flows[221] - The Federal Reserve raised its target range for the federal funds rate by a total of 4.25% since March 2022, impacting debt service obligations and overall financing costs[222] - The phase-out of LIBOR could disrupt hedging strategies and increase interest expenses, adversely affecting financial condition[223]