Altus Midstream Company (ALTM) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Altus Midstream Company First Quarter 2021 Earnings Call. . I would now like to hand the conference over to your first speaker today, Mr. Patrick Cassidy. Please go ahead.
Patrick Cassidy: Good afternoon, and thank you for joining us on Altus Midstream Company's First Quarter Financial and Operational Results Conference Call. We will begin the call with an overview by Altus Midstream's CEO and President, Clay Bretches; and Ben Rodgers, CFO, will summarize our financial performance and outlook. Our prepared remarks will be approximately 10 minutes in length with the remainder of the call allotted for Q&A. Remarks during the call may also refer to the Altus Midstream investor presentation which can be found on our Investor Relations website at altusmidstream.com/investors.
Clay Bretches: Good afternoon and thank you for joining us today for Altus Midstream's first quarter 2021 conference call. We entered the year with very positive momentum and have been able to maintain this as we've advanced into the second quarter. Yesterday we issued our earnings release and we're on track to meet or exceed the midpoints of the performance we guided to last November even with the severe freezing weather we all injured in February and the other challenges related to our business. I'm especially pleased with the execution of our team and I will note a few of the milestones accomplished during the first three months of this year. This was our first quarter with all four JV pipelines and service. We also achieved our first full quarter in which we were free cash flow positive. Operating costs decreased for the seventh consecutive quarter and Altus paid its first cash dividend in March. Altus is a unique midstream competitor. We are a pure play Permian Basin the Gulf Coast midstream company. We own equity interest in four premier long haul pipelines that transport oil, gas, and natural gas liquids out of West Texas. Complementing this we operate state of the art gathering and processing assets which provide cleaner, more efficient product recoveries. These drive improved net backs and are aligned with the industry's increasing focus on ESG initiatives. We have a proven record of exceptional execution as our results during the first quarter further demonstrate. A major event during the quarter was the February freeze that disrupted our operations and JV assets over a nine day period. While the harsh weather testing facilities and field crews, broadly speaking, the favorable impacts offset the unfavorable. Ben will address guidance in his remarks but I would note that we expect no material negative impact on our annual adjusted EBITDA guidance range as a result of the winter storm.
Ben Rodgers: Thank you Clay. In my prepared remarks, I will review Altus Midstream financial performance for the first quarter, including the financial impact of the February freeze and our updated guidance for 2021. As noted in the press release issued yesterday Altus reported net income including non controlling interests of $22 million for the first quarter. Adjusted EBITDA was $65 million and growth capital expenditures were approximately $21 million. Net income including non-controlling interests was lower by approximately $17 million related to an unrealized embedded derivative loss for the quarter which reflects a technical accounting revaluation of the embedded derivative in our preferred units for the period. Gathered volumes for the quarter averaged $436 million cubic feet per day of which approximately 72% was rich gas. Volumes for the first quarter were impacted by weather related curtailments which were partially offset by the two additional well hookups at Alpine High during the quarter. All the weather related shutdowns were brought back online before the end of February. Our first quarter results also include the initial contributions from the Permian Highway natural gas pipeline which entered service on January 1, 2021. However, distributions didn't really lag a month. So this quarter's results reflect only two months of distributions from PHP, one of which was lower due to the weather impacts of winter storm Erie. Both PHP and Gulf Coast Express are fully supported by shippers minimum volume commitments and we expect steady contributions from them going forward. For Altus the financial impact of the storm was immaterial. Across our four JV pipes and our GMP system the negative impact to net income before taxes and adjusted EBITDA was approximately $0.5 million. Negative impacts from lower volumes across all assets, including pipeline imbalances were almost fully offset by the benefit of our power contract that Clay discussed. I would also like to commend the commercial and operations team for their achievements before and during the storm. Results are an outcome of preparation and from contracting strategies that provide flexibility and mitigate risks to the execution in the field necessary for maintaining our operations and severe conditions they did an excellent job.
Operator: Your first question today comes from the line of Spiro Dounis with Credit Suisse. Please proceed with your questions.
Unidentified Analyst: Hi, this is Chad on for Spiro. Just starting off Clay, I believe you've previously alluded to some potential growth opportunities coming later this year. It sounds like that may still be the case based on your prepared remarks. But can we see any of those projects you mentioned coming in the next few months or being announced in the next few months? Just wondering how we should think about timing some of those opportunities.
Clay Bretches: Yes. Thanks for the question, Chad. And with regard to the growth opportunities, we do believe that those are something that are very feasible. I do believe just from a timing standpoint, we'd be looking at the second half of the year rather than the next two months. A lot of that will stem from operators that are starting to increase their activity in and around the Delaware basin. We think that some of the mandates, some of the regulatory mandates that we'll see with regard to methane and flaring are going to benefit Altus greatly, not only in the last half of this year, but going into 2022 as well. So the fact that we are structured the way that we are with a new plant, state of the art facilities, a lot of ESG ads that you can see on our investor presentation, what we really do have some great additions to that plant that don't exist in many of the other particularly older plants in the Permian Basin.
Unidentified Analyst: Okay, thanks. That's clear. And then I guess just sticking with the growth opportunities, could you provide any kind of detail on what CapEx could look like from these opportunities? Are these sounds like they're maybe a little bit smaller spend kind of complimentary projects but is there anything in there that could be significant CapEx?
Clay Bretches: Yes. When we take a look at what we're talking about in terms of CapEx is going to be connection CapEx because we have excess capacity in the plants, we have 660 million cubic feet per day of processing capacity, we're processing right now between 340 million to $360 million cubic feet per day through our rich system. We have plenty of capacity in our lean system over 200 million cubic feet per day of excess capacity. So either if it's lean gas or rich gas, the opportunities to bring that gas in there is really just going to be pipeline ways to either producers or other midstream operators in the area. So I guess, to answer your question, we're not talking about big capital expenditures. What we're talking about doing is utilizing excess capacity that we have in our lean gas and rich gas processing systems.
Ben Rodgers: Yes. And one more clarifying point there on top of that, we think of it as well in terms of kind of build multiple of projects and a lot of what we're seeing are very attractive build multiples kind of in the low to mid single digits which will be a creative for our shareholders.
Unidentified Analyst: Okay, that's clear. Thanks for that. That's all I had. Thanks for the time, everyone.
Clay Bretches: Thanks Chad.
Operator: Your next question comes from the line of James Carreker with U.S. Capital Advisors. Please proceed with your question.
James Carreker: Hi, guys, thanks for the question. Do you happen to have the contribution that PHP made in Q1, just as we think about what that could look like going forward?
Clay Bretches: Not specifically, James. It's going to have some noise in it from Q1 as we mentioned, because of the winter storm impacting flows and imbalances, quite frankly, across many of the pipes in Texas, including GCX and PHP. I haven't disclosed the specifics around that. But I fully expect it to normalize in Qs 2 through 4 and even beyond barring any other kind of force majeure events out there?
James Carreker: Okay. So I mean, you'll disclose the distributions you've got in the 10-Q I imagine, but you're saying that even taking that up and grossing it up for a third monthly payment, would still not reflect really what it’s ongoing earnings will be because you had that storm impact?
Clay Bretches: That's right.
James Carreker: Okay. Is there any early indications on how the two completed docks are performing? How long have those been flowing and any kind of IP rates or one month production rates so far?
Clay Bretches: No, Apache about that on their call this morning about the fact that the two docks, they were completed earlier this year and Alpine High and they have five more and we even mentioned that in the script earlier as far as those will be completed in the month of May and we will even have some of them flowing. But there has not been any discussion on the results of the two that have already been completed from Apache. So that's not something that we can comment on ourselves. But we expect to have more information and expect the Apache will disclose some of that in further discussions on Alpine High.
James Carreker: Well, one reason I asked is because with the two docks completed plus five more in Q2, I just, it seems like that would have led to maybe a little bit higher revision of the throughput guidance. So any other things that are going on there to offset what would be those added volumes?
Clay Bretches: Yes. So it's good question and let me say this as far as our guidance, we're being very conservative. So what you're not seeing is a lot of upside baked in from those docks and the performance there of. So standby on that. We'll try to provide some more color on that in the months ahead. But we're waiting on Apache to make that disclosure before we get out in front of that, but what you're not seeing in the guidance, if you will, is a lot of upside baked in for those docks.
James Carreker: Okay, and then maybe final question for me, I think Apache did allude to the non-core Permian asset sale on their call, but it didn't sound like it was related to Alpine High. Is that your understanding as well?
Clay Bretches: That is correct.
James Carreker: Okay. Thank you.
Clay Bretches: Thank you, James.
Operator: And there are no further questions in queue at this time. I will now turn the call back to CEO Clay Bretches for any closing remarks.
Clay Bretches: Thank you for listening to our call today. I'd like to leave you with the following closing thoughts about Altus Midstream. We entered 2021 was significant momentum and this continues. Signs of economic improvement are out there as more people get vaccinated and business activity picks up across all sectors. We see potential with new wells contributing to our GMP business, the potential for third party volumes and increased utilization on our joint venture liquid pipelines. We have the capability to Permian Basin operators a range of midstream solutions with a focus on ESG performance. It should be noted that our updated guidance does not include upside associated with his optimism. Lastly, Altus is well-positioned to achieve its financial and operational goals in 2021. This supports our objective of returning capital to shareholders. And I am pleased we will deliver our second quarterly dividend payment next month. Operator that concludes our call. I will turn it over to you.
Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
