Summit Midstream(SMLP) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Summit Midstream Partners, LP as of March 31, 2023, show a net loss of $14.2 million for the first quarter, a significant increase from a net loss of $5 thousand in the same period of 2022, reflecting the company's financial position, operational results, changes in partners' capital, and cash flows, including the impact of recent acquisitions and divestitures Unaudited Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $2.545 billion, a slight decrease from $2.560 billion at year-end 2022, primarily driven by lower accounts receivable and depreciation of property, plant, and equipment, while total liabilities remained stable at approximately $1.677 billion and total partners' capital decreased from $764.8 million to $749.7 million Condensed Consolidated Balance Sheet Data (Unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $94,204 | $97,542 | | Property, plant and equipment, net | $1,712,494 | $1,718,754 | | TOTAL ASSETS | $2,545,435 | $2,559,964 | | Total current liabilities | $132,053 | $117,889 | | Long-term debt, net of issuance costs | $1,465,555 | $1,479,855 | | TOTAL LIABILITIES | $1,677,031 | $1,676,562 | | Total partners' capital | $749,702 | $764,818 | | TOTAL LIABILITIES AND CAPITAL | $2,545,435 | $2,559,964 | Unaudited Condensed Consolidated Statements of Operations For the three months ended March 31, 2023, the Partnership reported a net loss of $14.2 million, compared to a net loss of $5 thousand for the same period in 2022, as total revenues increased to $112.5 million from $96.1 million, driven by higher natural gas and NGL sales, but offset by increased costs, particularly in cost of natural gas, operation and maintenance, and interest expense Consolidated Statements of Operations Highlights (Unaudited) | (In thousands, except per-unit amounts) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $112,499 | $96,126 | | Total costs and expenses | $96,401 | $82,981 | | Interest expense | ($34,223) | ($24,163) | | Net loss | ($14,163) | ($5) | | Net loss attributable to common limited partners | ($18,548) | $13,036 | | Net loss per common unit – basic | ($1.82) | $1.35 | Unaudited Condensed Consolidated Statements of Cash Flows For the first quarter of 2023, net cash provided by operating activities was $49.7 million, up from $46.0 million in Q1 2022, while net cash used in investing activities increased to $22.5 million, primarily due to higher capital expenditures, and net cash used in financing activities decreased significantly to $17.4 million from $37.8 million, mainly due to lower repayments on the ABL Facility, resulting in a $9.8 million increase in cash, cash equivalents, and restricted cash Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,695 | $46,046 | | Net cash used in investing activities | ($22,549) | ($15,297) | | Net cash used in financing activities | ($17,394) | ($37,841) | | Net change in cash, cash equivalents and restricted cash | $9,752 | ($7,092) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the Partnership's organization, accounting policies, and significant financial events, including the accounting for the 2022 acquisitions of Outrigger DJ and Sterling DJ, revenue recognition and future commitments, a breakdown of debt instruments and compliance with covenants, and information on commitments and contingencies, notably the ongoing costs related to the 2015 Blacktail Release settlement - The Partnership completed the acquisitions of Outrigger DJ and Sterling DJ in December 2022, significantly increasing its gas processing capacity and footprint in the DJ Basin. The purchase price allocations are provisional and subject to change[30][32] Estimated Future Revenue from Unsatisfied Performance Obligations | (In thousands) | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Gathering services and related fees | $57,576 | $67,079 | $46,803 | $30,527 | $9,038 | $6,042 | Debt Composition as of March 31, 2023 | (In thousands) | Principal Amount | | :--- | :--- | | ABL Facility due 2026 | $317,000 | | Permian Transmission Term Loan due 2028 | $152,833 | | 5.75% Senior Notes due 2025 | $259,463 | | 8.50% Secured Notes due 2026 | $785,000 | | Total Debt (before unamortized costs) | $1,514,296 | - The Partnership has a significant accrued liability of $28.3 million related to the 2015 Blacktail Release, stemming from a Global Settlement with federal and state governments, which includes penalties and fines payable over several years[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the Q1 2023 financial results, highlighting a $16.4 million increase in total revenue year-over-year, primarily from the 2022 DJ Acquisitions, which was offset by a $13.4 million increase in costs and a $10.1 million rise in interest expense, resulting in a higher net loss, while detailing segment performance, capital strategy, liquidity, debt compliance, and the impact of rising interest rates Trends and Outlook The company's outlook is shaped by several key trends, including its focus on integrating the strategic DJ Basin acquisitions made in 2022 to achieve synergies, continued pursuit of cost structure optimization and opportunistic portfolio management, and external factors creating uncertainty such as the ongoing Russia-Ukraine conflict's impact on commodity prices, rising interest rates which increase financing costs, and the potential long-term effects of the Inflation Reduction Act of 2022 on the fossil fuel industry - The company is focused on integrating the 2022 DJ Acquisitions to realize capital and operating synergies[108] - The Partnership intends to improve its capital structure by reducing debt with free cash flow and may pursue opportunistic acquisitions or divestitures[109] - Rising interest rates are a key concern, as the company has significant variable-rate debt under its ABL Facility and Permian Transmission Term Loan[113] Results of Operations Consolidated revenue for Q1 2023 increased by $16.4 million YoY to $112.5 million, driven by a $26.7 million increase in natural gas and NGL sales from the 2022 DJ acquisitions, partially offset by a $6.6 million decrease in gathering fees, while total costs rose by $13.4 million, mainly from higher cost of gas and increased operation and maintenance expenses related to the new assets, and interest expense also increased by $10.1 million, leading to mixed segment performance where the Rockies segment's adjusted EBITDA grew 46% to $23.1 million, but other segments saw declines Consolidated Results Overview (Q1 2023 vs Q1 2022) | (In thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenues | $112,499 | $96,126 | | Total costs and expenses | $96,401 | $82,981 | | Interest expense | ($34,223) | ($24,163) | | Net loss | ($14,163) | ($5) | Segment Adjusted EBITDA (Q1 2023 vs Q1 2022) | (In thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Rockies | $23,130 | $15,830 | | Permian | $5,073 | $4,149 | | Northeast | $17,854 | $20,068 | | Piceance | $13,983 | $15,768 | | Barnett | $7,027 | $9,286 | | Total Reportable Segments | $67,067 | $65,101 | - The Rockies segment saw a 272% increase in natural gas throughput and a 78% increase in revenue, primarily due to the 2022 DJ Acquisitions[135][137] Liquidity and Capital Resources The Partnership relies on internally generated cash flow and external financing, including its ABL Facility, to fund operations and capital expenditures, and as of March 31, 2023, the company was in compliance with all debt covenants, with a First Lien Net Leverage Ratio of 1.24:1.00 (vs. a covenant of <2.50:1.00) and available borrowing capacity on the ABL Facility of $78.7 million, while the 2023 capital program is estimated to be $45-$65 million, and due to insufficient Excess Cash Flow in 2022, the interest rate on the 2026 Secured Notes increased by 50 basis points to 9.00% effective April 1, 2023 - As of March 31, 2023, the Partnership was in compliance with all debt covenants, with a First Lien Net Leverage Ratio of 1.24:1.00 and an Interest Coverage Ratio of 2.37:1.00[160] - The estimated 2023 capital program ranges from $45.0 million to $65.0 million, including $10.0 million to $15.0 million for maintenance[175] - The interest rate on the $785 million of 2026 Secured Notes increased by 50 basis points to 9.00% on April 1, 2023, because the company was unable to make a required offer to purchase notes with Excess Cash Flow from 2022, which will increase annual interest expense by approximately $3.9 million[166][178] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Partnership's primary market risks are interest rate risk, stemming from its variable-rate debt including the ABL Facility and the Permian Transmission Term Loan, where $137.6 million of its interest rate exposure on the Permian loan was hedged as of March 31, 2023, and commodity price risk, which is limited as most revenues are fee-based, but some exposure exists from the sale of natural gas, NGLs, and condensate in the Rockies, Piceance, and Barnett segments - The company is exposed to interest rate risk on its variable-rate ABL Facility ($317.0 million outstanding) and Permian Transmission Term Loan ($152.8 million outstanding)[203] - Direct commodity price exposure is primarily from percentage-of-proceeds arrangements in the Rockies and Piceance segments and retainage gas sales in the Barnett segment[204] Item 4. Controls and Procedures Management, under the direction of the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023, with no material changes to internal control over financial reporting occurring during the quarter - The company's disclosure controls and procedures were deemed effective as of March 31, 2023[205] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Partnership is involved in several legal proceedings, including the Global Settlement related to the 2015 Blacktail Release, which resulted in penalties and fines of $36.3 million payable over six years, and other ongoing litigation such as a breach of contract suit with Fiberspar Corporation seeking over $5.0 million, a dispute with Verdad Resources over marketing fees totaling approximately $3.6 million, and a suit filed by a subsidiary against Sage Natural Resources for nearly $1.0 million in unpaid costs - The Global Settlement for the 2015 Blacktail Release resulted in total losses of $36.3 million, to be paid over six years, and as of March 31, 2023, $8.0 million has been paid[209][213] - Fiberspar Corporation has sued the company for over $5.0 million for alleged breach of contract related to pipeline product orders[208] - Verdad Resources has filed a complaint against subsidiaries acquired in the 2022 DJ Acquisitions, seeking approximately $3.6 million in damages related to marketing fees[214] Item 1A. Risk Factors The risk factors disclosed in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2022, are incorporated by reference into this quarterly report - Risk factors from the 2022 Annual Report on Form 10-K are incorporated by reference[217] Item 5. Other Information There is no other information to report for this item - None[218] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, subsidiary guarantor lists, CEO and CFO certifications, and XBRL data files - The report includes exhibits such as the Partnership Agreement, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[220]