UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 001-35666
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer
Identification No.)
(Zip Code)
(832 ) 413-4770
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| x | o | No | |||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | x | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | As of May 1, 2023 | |||||||
| Common Units | ||||||||
TABLE OF CONTENTS
1
COMMONLY USED OR DEFINED TERMS
| 2015 Blacktail Release | a 2015 rupture of our four-inch produced water gathering pipeline near Williston, North Dakota | ||||
| 2025 Senior Notes | Summit Holdings' and Finance Corp.’s 5.75% senior unsecured notes due April 2025 | ||||
| 2026 Secured Notes | Summit Holdings' and Finance Corp.’s 8.500% senior secured second lien notes due 2026 | ||||
| 2026 Secured Notes Indenture | Indenture, dated as of November 2, 2021, by and among Summit Holdings, Finance Corp., the guarantors party thereto and Regions Bank, as trustee | ||||
| ABL Facility | the asset-based lending credit facility governed by the ABL Agreement | ||||
| ABL Agreement | Loan and Security Agreement, dated as of November 2, 2021, among Summit Holdings, as borrower, SMLP and certain subsidiaries from time to time party thereto, as guarantors, Bank of America, N.A., as agent, ING Capital LLC, Royal Bank of Canada and Regions Bank, as co-syndication agents, and Bank of America, N.A., ING Capital LLC, RBC Capital Markets and Regions Capital Markets, as joint lead arrangers and joint bookrunners | ||||
| ASU | Accounting Standards Update | ||||
| Bison Midstream | Bison Midstream, LLC | ||||
| Board of Directors | the board of directors of our General Partner | ||||
| condensate | a natural gas liquid with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions | ||||
| Co-Issuers | Summit Holdings and Finance Corp. | ||||
| DFW Midstream | DFW Midstream Services LLC | ||||
| DJ Basin | Denver-Julesburg Basin | ||||
| Double E | Double E Pipeline, LLC | ||||
| Double E Pipeline | a 135 mile, 1.35 Bcf/d, FERC-regulated interstate natural gas transmission pipeline that commenced operations in November 2021 and provides transportation service from receipt points in the Delaware Basin to various delivery points in and around the Waha hub in Texas | ||||
| Double E Project | the development and construction of the Double E Pipeline | ||||
| ECP | Energy Capital Partners II, LLC and its parallel and co-investment funds | ||||
EPA | Environmental Protection Agency | ||||
| EPU | earnings or loss per unit | ||||
| FASB | Financial Accounting Standards Board | ||||
| Finance Corp. | Summit Midstream Finance Corp. | ||||
2
| fracking | the process of injecting liquid at high pressure into subterranean rocks, boreholes, etc. so as to force open existing fissures and extract oil or gas | ||||
| frac-protect activities | activities that are designed to protect existing hydrocarbon wells from harm by shutting in existing hydrocarbon production until new well activities have concluded | ||||
| GAAP | accounting principles generally accepted in the United States of America | ||||
| General Partner | Summit Midstream GP, LLC | ||||
| GP | general partner | ||||
| Grand River | Grand River Gathering, LLC | ||||
| Guarantor Subsidiaries | Grand River and its subsidiaries, DFW Midstream, Summit Marketing, Summit Permian, Permian Finance, OpCo, Summit Utica, Meadowlark Midstream, Summit Permian II, Mountaineer Midstream, Epping, Red Rock, Polar Midstream and Summit Niobrara | ||||
| Hub | geographic location of a storage facility and multiple pipeline interconnections | ||||
| LIBOR | London Interbank Offered Rate | ||||
| Mbbl/d | one thousand barrels per day | ||||
MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
| Meadowlark Midstream | Meadowlark Midstream Company, LLC | ||||
| MMBTU | metric million British thermal units | ||||
| MMcf/d | one million cubic feet per day | ||||
| Mountaineer Midstream | Mountaineer Midstream Company, LLC | ||||
| MVC | minimum volume commitment | ||||
| NGLs | natural gas liquids; the combination of ethane, propane, normal butane, iso-butane and natural gasolines that when removed from unprocessed natural gas streams become liquid under various levels of higher pressure and lower temperature | ||||
| NYSE | New York Stock Exchange | ||||
| Ohio Gathering | Ohio Gathering Company, L.L.C. and Ohio Condensate Company, L.L.C. | ||||
| OpCo | Summit Midstream OpCo, LP | ||||
| play | a proven geological formation that contains commercial amounts of hydrocarbons | ||||
| Permian Finance | Summit Midstream Permian Finance, LLC | ||||
| Permian Holdco | Summit Permian Transmission Holdco, LLC | ||||
3
| Permian Term Loan Facility | the term loan governed by the Credit Agreement, dated as of March 8, 2021, among Summit Permian Transmission, LLC, as borrower, MUFG Bank Ltd., as administrative agent, Mizuho Bank (USA), as collateral agent, ING Capital LLC, Mizuho Bank, Ltd. and MUFG Union Bank, N.A., as L/C issuers, coordinating lead arrangers and joint bookrunners, and the lenders from time to time party thereto | ||||
Permian Transmission Credit Facilities | the credit facilities governed by the Credit Agreement, dated as of March 8, 2021, among Summit Permian Transmission, LLC, as borrower, MUFG Bank Ltd., as administrative agent, Mizuho Bank (USA), as collateral agent, ING Capital LLC, Mizuho Bank, Ltd. and MUFG Union Bank, N.A., as L/C issuers, coordinating lead arrangers and joint bookrunners, and the lenders from time to time party thereto | ||||
| produced water | water from underground geologic formations that is a by-product of natural gas and crude oil production | ||||
| Red Rock Gathering | Red Rock Gathering Company, LLC | ||||
| Revolving Credit Facility | the Third Amended and Restated Credit Agreement dated as of May 26, 2017, as amended by the First Amendment to Third Amended and Restated Credit Agreement dated as of September 22, 2017, the Second Amendment to Third Amended and Restated Credit Agreement dated as of June 26, 2019, the Third Amendment to Third Amended and Restated Credit Agreement dated as of December 24, 2019 and the Fourth Amendment to Third Amended and Restated Credit Agreement dated as of December 18, 2020 | ||||
| SEC | Securities and Exchange Commission | ||||
| Securities Act | Securities Act of 1933, as amended | ||||
segment adjusted EBITDA | total revenues less total costs and expenses; plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii)depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) adjustments related to capital reimbursement activity, (vi) unit-based and noncash compensation, (vii) impairments and (viii) other noncash expenses or losses, less other noncash income or gains | ||||
| Senior Notes | The 2025 Senior Notes and the 2026 Secured Notes, collectively | ||||
| Series A Preferred Units | Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units | ||||
| shortfall payment | the payment received from a counterparty when its volume throughput does not meet its MVC for the applicable period | ||||
| SMLP | Summit Midstream Partners, LP | ||||
| SMLP LTIP | SMLP Long-Term Incentive Plan | ||||
| SMP Holdings | Summit Midstream Partners Holdings, LLC, also known as SMPH | ||||
| SMPH Term Loan | the Term Loan Agreement, dated as of March 21, 2017, among SMP Holdings, as borrower, the lenders party thereto and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent | ||||
Subsidiary Series A Preferred Units | Series A Fixed Rate Cumulative Redeemable Preferred Units issued by Permian Holdco | ||||
| Summit Holdings | Summit Midstream Holdings, LLC | ||||
4
| Summit Investments | Summit Midstream Partners, LLC | ||||
| Summit Marketing | Summit Midstream Marketing, LLC | ||||
| Summit Niobrara | Summit Midstream Niobrara, LLC | ||||
| Summit Permian | Summit Midstream Permian, LLC | ||||
| Summit Permian II | Summit Midstream Permian II, LLC | ||||
Summit Permian Transmission | Summit Permian Transmission, LLC | ||||
| Summit Utica | Summit Midstream Utica, LLC | ||||
| the Partnership | Summit Midstream Partners, LP and its subsidiaries | ||||
the Partnership Agreement | the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership dated May 28, 2020 | ||||
| throughput volume | the volume of natural gas, crude oil or produced water gathered, transported or passing through a pipeline, plant or other facility during a particular period; also referred to as volume throughput | ||||
unconventional resource basin | a basin where natural gas or crude oil production is developed from unconventional sources that require hydraulic fracturing as part of the completion process, for instance, natural gas produced from shale formations and coalbeds; also referred to as an unconventional resource play | ||||
| wellhead | the equipment at the surface of a well, used to control the well's pressure; also, the point at which the hydrocarbons and water exit the ground | ||||
5
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands, except unit amounts) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Investment in equity method investees | |||||||||||
| Other noncurrent assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND CAPITAL | |||||||||||
| Trade accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Deferred revenue | |||||||||||
| Ad valorem taxes payable | |||||||||||
| Accrued compensation and employee benefits | |||||||||||
| Accrued interest | |||||||||||
| Accrued environmental remediation | |||||||||||
| Accrued settlement payable | |||||||||||
| Current portion of long-term debt | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of issuance costs | |||||||||||
| Noncurrent deferred revenue | |||||||||||
| Noncurrent accrued environmental remediation | |||||||||||
| Other noncurrent liabilities | |||||||||||
| TOTAL LIABILITIES | |||||||||||
Commitments and contingencies (Note 14) | |||||||||||
| Mezzanine Capital | |||||||||||
Subsidiary Series A Preferred Units ( | |||||||||||
| Partners' Capital | |||||||||||
Series A Preferred Units ( | |||||||||||
Common limited partner capital ( | |||||||||||
Total partners' capital | |||||||||||
TOTAL LIABILITIES AND CAPITAL | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands, except per-unit amounts) | |||||||||||
| Revenues: | |||||||||||
| Gathering services and related fees | $ | $ | |||||||||
| Natural gas, NGLs and condensate sales | |||||||||||
| Other revenues | |||||||||||
Total revenues | |||||||||||
| Costs and expenses: | |||||||||||
| Cost of natural gas and NGLs | |||||||||||
| Operation and maintenance | |||||||||||
| General and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Transaction costs | |||||||||||
| Acquisition integration costs | |||||||||||
| (Gain) loss on asset sales, net | ( | ||||||||||
| Long-lived asset impairments | |||||||||||
Total costs and expenses | |||||||||||
| Other income, net | |||||||||||
| Gain (loss) on interest rate swaps | ( | ||||||||||
| Gain on sale of business | |||||||||||
| Interest expense | ( | ( | |||||||||
| Loss before income taxes and equity method investment income | ( | ( | |||||||||
| Income tax benefit (expense) | ( | ||||||||||
| Income from equity method investees | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Less: Net income attributable to Subsidiary Series A Preferred Units | ( | ( | |||||||||
| Net loss attributable to Summit Midstream Partners, LP | $ | ( | $ | ( | |||||||
| Less: net income attributable to Series A Preferred Units | ( | ( | |||||||||
| Add: deemed contribution from 2022 Preferred Exchange Offer | |||||||||||
| Net income (loss) attributable to common limited partners | $ | ( | $ | ||||||||
| Net loss per limited partner unit: | |||||||||||
Common unit – basic | $ | ( | $ | ||||||||
Common unit – diluted | $ | ( | $ | ||||||||
| Weighted-average limited partner units outstanding: | |||||||||||
Common units – basic | |||||||||||
Common units – diluted | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
| Partners' Capital | |||||||||||||||||
| Series A Preferred Units | Common Limited Partners Capital | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Partners' capital, December 31, 2022 | $ | $ | $ | ||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||
| Unit-based compensation | |||||||||||||||||
Tax withholdings and associated payments on vested SMLP LTIP awards | ( | ( | |||||||||||||||
| Partners' capital, March 31, 2023 | $ | $ | $ | ||||||||||||||
| Partners' Capital | |||||||||||||||||
| Series A Preferred Units | Common Limited Partners Capital | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Partners' capital, December 31, 2021 | $ | $ | $ | ||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||
| Unit-based compensation | |||||||||||||||||
Tax withholdings and associated payments on vested SMLP LTIP awards | ( | ( | |||||||||||||||
| Tax withholdings on 2022 Preferred Exchange Offer | ( | ( | |||||||||||||||
Effect of 2022 Preferred Exchange Offer, inclusive of a $ | ( | ||||||||||||||||
| Partners' capital, March 31, 2022 | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Noncash lease expense | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Unit-based and noncash compensation | |||||||||||
| Income from equity method investees | ( | ( | |||||||||
| Distributions from equity method investees | |||||||||||
| (Gain) loss on asset sales, net | ( | ||||||||||
| Foreign currency gain | ( | ||||||||||
| Unrealized (gain) loss on interest rate swaps | ( | ||||||||||
| Long-lived asset impairment | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Trade accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Deferred revenue, net | ( | ( | |||||||||
| Ad valorem taxes payable | ( | ( | |||||||||
| Accrued interest | |||||||||||
| Accrued environmental remediation, net | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from asset sale | |||||||||||
| Investment in Double E equity method investee | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments on Permian Transmission Term Loan | ( | ( | |||||||||
| Repayments on ABL Facility | ( | ( | |||||||||
| Distributions on Subsidiary Series A Preferred Units | ( | ||||||||||
| Debt issuance costs | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION
Organization. Summit Midstream Partners, LP (including its subsidiaries, collectively “SMLP” or the “Partnership”) is a Delaware limited partnership that was formed in May 2012 and began operations in October 2012. SMLP is a value-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in unconventional resource basins, primarily shale formations, in the continental United States. The Partnership’s business activities are primarily conducted through various operating subsidiaries, each of which is owned or controlled by its wholly owned subsidiary holding company, Summit Holdings, a Delaware limited liability company.
Business Operations. The Partnership provides natural gas gathering, compression, treating and processing services as well as crude oil and produced water gathering services pursuant to primarily long-term, fee-based agreements with its customers. The Partnership’s results are primarily driven by the volumes of natural gas that it gathers, compresses, treats and/or processes as well as by the volumes of crude oil and produced water that it gathers. Other than the Partnership’s investments in Double E and Ohio Gathering, all of its business activities are conducted through wholly owned operating subsidiaries.
Presentation and Consolidation. The Partnership prepares its condensed consolidated financial statements in accordance with GAAP as established by the FASB and pursuant to the rules and regulations of the SEC pertaining to interim financial information. The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented herein. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and related notes that are included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING STANDARDS APPLICABLE TO THE PARTNERSHIP
There have been no changes to the Partnership’s significant accounting policies since December 31, 2022.
Accounting standards recently implemented.
ASU No. 2020-4 Reference Rate Reform (“ASU 2020-4”). ASU 2020-4 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting. The amendments in ASU 2020-4 are effective as of March 12, 2020 through December 31, 2022. The Partnership does not expect the provisions of ASU 2020-4 will have a material impact on its consolidated financial statements and disclosures.
New accounting standards not yet implemented.
ASU No. 2020-6 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU 2020-6”). ASU 2020-6 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Partnership does not expect the provisions of ASU 2020-6 will have a material impact on its consolidated financial statements and disclosures.
3. ACQUISITIONS AND DIVESTITURES
Acquisition of Outrigger DJ. On December 1, 2022, the Partnership completed the acquisition of 100 % of the equity interests of Outrigger DJ Midstream LLC (“Outrigger DJ”) from Outrigger Energy II LLC for cash consideration of $165.0 million, subject to customary working capital adjustments. The acquisition of Outrigger DJ constituted a business combination and was accounted for using the acquisition method of accounting. For tax purposes, the acquisition was accounted for as an acquisition of assets. The acquisition significantly increased the Partnership’s gas processing capacity and footprint in the DJ Basin and diversified its customer base.
10
No material changes were made during three months ended March 31, 2023 to the provisional purchase accounting measurements initially recorded in December 2022 for the Outrigger DJ acquisition. The provisional measurements are subject to change during the measurement period and such changes could be material. The Partnership continues to assess the fair values of the assets acquired and liabilities assumed. Certain data and assessments necessary to complete the purchase price allocation are still under evaluation, including, but not limited to, the final actualization of accrued liabilities and receivable balances and the valuation of property, plant and equipment and intangible assets. The Partnership will finalize the purchase price allocation during the twelve-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
Acquisition of Sterling DJ. On December 1, 2022, the Partnership completed the acquisition of 100 % of the equity interests in each of Sterling Energy Investments LLC, Grasslands Energy Marketing LLC and Centennial Water Pipelines LLC (collectively, “Sterling DJ”) from Sterling Investment Holdings LLC for cash consideration of $140.0 million, subject to customary working capital adjustments. The acquisition of Sterling DJ constituted a business combination and was accounted for using the acquisition method of accounting. For tax purposes, the acquisition was accounted for as an acquisition of assets. The acquisition significantly increased the Partnership’s gas processing capacity and footprint in the DJ Basin and diversified its customer base.
No material changes were made during three months ended March 31, 2023 to the provisional purchase accounting measurements initially recorded in December 2022 for the Sterling DJ acquisition. The provisional measurements are subject to change during the measurement period and such changes could be material. The Partnership continues to assess the fair values of the assets acquired and liabilities assumed. Certain data and assessments necessary to complete the purchase price allocation are still under evaluation, including, but not limited to, the final actualization of accrued liabilities and receivable balances and the valuation of property, plant and equipment and intangible assets. The Partnership will finalize the purchase price allocation during the twelve-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
Divestiture of Lane G&P System. On June 30, 2022, the Partnership completed the sale of Summit Permian, which owns the Lane Gathering and Processing System (“Lane G&P System”), and Permian Finance to Longwood Gathering and Disposal Systems, LP (“Longwood”), a wholly owned subsidiary of Matador ͏Resources Company (“Matador”), for a cash sale price of $75.0 million, subject to customary working capital adjustments. In connection with the transaction, the Partnership released, to a subsidiary of Matador, and Matador agreed to assume, take or-pay firm capacity on the Double E Pipeline.
Divestiture of Bison Midstream. On September 19, 2022, the Partnership completed the sale of Bison Midstream, LLC (“Bison Midstream”), its gas gathering system in Burke and Mountrail Counties, North Dakota to a subsidiary of Steel Reef Infrastructure Corp. (“Steel Reef”), an integrated owner and operator of associated gas capture, gathering and processing assets in North Dakota and Saskatchewan, for cash consideration of $40.0 million.
Pro Forma Information (Unaudited)
The following unaudited supplemental pro forma condensed results of operations for the three months ended March 31, 2022 present consolidated information as though the acquisition of Sterling DJ and Outrigger DJ, and the divestiture of the Lane G&P System and Bison Midstream had occurred on January 1, 2021. The unaudited supplemental pro forma financial information was derived from the historical consolidated and combined statements of operations of the Partnership, Sterling DJ, and Outrigger DJ and modified to include required conforming adjustments. These unaudited supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined entities for the periods presented or that may be achieved in the future. Future results may vary significantly from the results reflected in this unaudited pro forma financial information:
| Three Months Ended March 31, | |||||
| 2022 | |||||
| Revenues | $ | ||||
| Net income | $ | ||||
4. REVENUE
11
| (In thousands) | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |||||||||||||||||||||||||||||
| Gathering services and related fees | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Revenue by category. In the following tables, revenue is disaggregated by geographic area and major products and services. For more detailed information about reportable segments, see Note 15 – Segment Information.
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||
| Gathering services and related fees | Natural gas, NGLs and condensate sales | Other revenues | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Reportable Segments: | |||||||||||||||||||||||
| Northeast | $ | $ | $ | $ | |||||||||||||||||||
| Rockies | |||||||||||||||||||||||
| Permian | |||||||||||||||||||||||
| Piceance | |||||||||||||||||||||||
| Barnett | |||||||||||||||||||||||
| Total reportable segments | |||||||||||||||||||||||
| Corporate and other | ( | ( | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Gathering services and related fees | Natural gas, NGLs and condensate sales | Other revenues | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Reportable Segments: | |||||||||||||||||||||||
| Northeast | $ | $ | $ | $ | |||||||||||||||||||
| Rockies | |||||||||||||||||||||||
| Permian | |||||||||||||||||||||||
| Piceance | |||||||||||||||||||||||
| Barnett | |||||||||||||||||||||||
| Total reportable segments | |||||||||||||||||||||||
| Corporate and other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
12
5. PROPERTY, PLANT AND EQUIPMENT
Details on the Partnership’s property, plant and equipment follow.
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Gathering and processing systems and related equipment | $ | $ | |||||||||
| Construction in progress | |||||||||||
| Land and line fill | |||||||||||
| Other | |||||||||||
Total | |||||||||||
| Less: accumulated depreciation | ( | ( | |||||||||
Property, plant and equipment, net | $ | $ | |||||||||
Depreciation expense and capitalized interest for the Partnership follow.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Depreciation expense | $ | $ | |||||||||
| Capitalized interest | |||||||||||
6. EQUITY METHOD INVESTMENTS
The Partnership has equity method investments in Double E and Ohio Gathering, the balances of which are included in the Investment in equity method investees caption on the unaudited condensed consolidated balance sheets. Details of the Partnership’s equity method investments follow.
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Double E | $ | $ | |||||||||
| Ohio Gathering | |||||||||||
| Total | $ | $ | |||||||||
7. DEFERRED REVENUE
Certain of the Partnership’s gathering and/or processing agreements provide for monthly or annual MVCs. The amount of the shortfall payment is based on the difference between the actual throughput volume shipped and/or processed for the applicable period and the MVC for the applicable period, multiplied by the applicable gathering or processing fee.
Many of the Partnership’s gas gathering agreements contain provisions that can reduce or delay the cash flows that it expects to receive from MVCs to the extent that a customer's actual throughput volumes are above or below its MVC for the applicable contracted measurement period.
The balances in deferred revenue as of March 31, 2023 and December 31, 2022 are primarily related to contributions in aid of construction which will be recognized as revenue over the life of the contract.
An update of current deferred revenue follows.
| Total | |||||
| (In thousands) | |||||
| Current deferred revenue, December 31, 2022 | $ | ||||
Add: additions | |||||
Less: revenue recognized and other | ( | ||||
| Current deferred revenue, March 31, 2023 | $ | ||||
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An update of noncurrent deferred revenue follows.
| Total | |||||
| (In thousands) | |||||
| Noncurrent deferred revenue, December 31, 2022 | $ | ||||
Add: additions | |||||
Less: reclassification to current deferred revenue and other | ( | ||||
| Noncurrent deferred revenue, March 31, 2023 | $ | ||||
8. DEBT
Debt for the Partnership at March 31, 2023 and December 31, 2022, follows:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
ABL Facility: Summit Holdings' asset based credit facility due May 1, 2026 | $ | $ | |||||||||
Permian Transmission Term Loan: Permian Transmission's variable rate senior secured term loan due January 2028 | |||||||||||
2025 Senior Notes: Summit Holdings' | |||||||||||
2026 Secured Notes: Summit Holdings' and Finance Corp's | |||||||||||
| Less: unamortized debt discount and debt issuance costs | ( | ( | |||||||||
| Total debt | |||||||||||
| Less: current portion of Permian Transmission Credit Facility | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
ABL Facility. On November 2, 2021, the Partnership, the Partnership’s subsidiary, Summit Holdings, and the subsidiaries of Summit Holdings party thereto entered into a first-lien, senior secured credit facility, consisting of a $400.0 million asset-based revolving credit facility (the “ABL Facility”), subject to a borrowing base comprised of a percentage of eligible accounts receivable of Summit Holdings and its subsidiaries that guarantee the ABL Facility (collectively, the “ABL Facility Subsidiary Guarantors”) and a percentage of eligible above-ground fixed assets including eligible compression units, processing plants, compression stations and related equipment of Summit Holdings and the ABL Facility Subsidiary Guarantors. As of March 31, 2023, the most recent borrowing base determination of eligible assets totaled $560.0 million, an amount greater than the $400.0 million of aggregate commitments.
The ABL Facility will mature on May 1, 2026; provided that, (a) if the outstanding amount of the 2025 Senior Notes (or any permitted refinancing indebtedness in respect thereof that has a final maturity, scheduled amortization or any other scheduled repayment, mandatory prepayment, mandatory redemption or sinking fund obligation prior to the date that is 120 days after the Termination Date (as defined in the ABL Agreement)) on such date equals or exceeds $50.0 million, then the ABL Facility will mature on December 13, 2024 and (b) if both (i) any amount of the 2025 Senior Notes (or any permitted refinancing indebtedness in respect thereof that has a final maturity, scheduled amortization or any other scheduled repayment, mandatory prepayment, mandatory redemption or sinking fund obligation prior to the date that is 120 days after the Termination Date) is outstanding on such date and (ii) Liquidity (as defined in the ABL Agreement) is less than an amount equal to the sum of the then aggregate outstanding principal amount of the 2025 Senior Notes (or any permitted refinancing indebtedness in respect thereof that has a final maturity, scheduled amortization or any other scheduled repayment, mandatory prepayment, mandatory redemption or sinking fund obligation prior to the date that is 120 days after the Termination Date) plus the Threshold Amount (as defined in the ABL Agreement) on such date, then the ABL Facility will mature on January 14, 2025.
As of March 31, 2023, the applicable margin under the adjusted LIBOR borrowings was 3.50 %, the interest rate was 8.42 % and the available borrowing capacity of the ABL Facility totaled $78.7 million after giving effect to the issuance of $4.3 million in outstanding but undrawn irrevocable standby letters of credit.
The ABL Facility requires that Summit Holdings not permit (i) the First Lien Net Leverage Ratio (as defined in the ABL Agreement) as of the last day of any fiscal quarter to be greater than 2.50 :1.00, or (ii) the Interest Coverage Ratio (as defined in the ABL Agreement) as of the last day of any fiscal quarter to be less than 2.00 :1.00. As of March 31, 2023, the First Lien Net
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Leverage Ratio was 1.24 :1.00 and the Interest Coverage Ratio was 2.37 :1.00 As of March 31, 2023, the Partnership was in compliance with the financial covenants of the ABL Facility.
Permian Transmission Credit Facility. On March 8, 2021, the Partnership’s unrestricted subsidiary, Permian Transmission, entered into a Credit Agreement which allows for $175.0 million of senior secured credit facilities (the “Permian Transmission Credit Facilities”), including a $160.0 million Term Loan Facility and a $15.0 million Working Capital Facility. The Permian Transmission Credit Facilities can be used to finance Permian Transmission’s capital calls associated with its investment in Double E, debt service and other general corporate purposes. Unexpended proceeds from draws on the Permian Transmission Credit Facilities are classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets.
As of March 31, 2023, the applicable margin under adjusted LIBOR borrowings was 2.375 %, the interest rate was 6.76 % and the unused portion of the Permian Transmission Credit Facilities totaled $4.5 million, subject to a commitment fee of 0.7 % after giving effect to the issuance of $10.5 million in outstanding but undrawn irrevocable standby letters of credit. Summit Permian Transmission, LLC entered into interest rate hedges with notional amounts representing approximately 90 % of the Permian Term Loan facility at a fixed LIBOR rate of 1.49 %. As of March 31, 2023, the Partnership was in compliance with the financial covenants of the Permian Transmission Credit Facilities.
Permian Transmission Term Loan. As described above, in January 2022, the Permian Term Loan Facility was converted into a Term Loan (the “Permian Transmission Term Loan”). The Permian Transmission Term Loan is due January 2028. As of March 31, 2023, the applicable margin under adjusted LIBOR borrowings was 2.375 % and the interest rate was 6.76 %. As of March 31, 2023, the Partnership was in compliance with the financial covenants governing the Permian Transmission Term Loan.
In accordance with the terms of the Permian Transmission Term Loan, Permian Transmission is required to make mandatory principal repayments. Below is a summary of the remaining mandatory principal repayments as of March 31, 2023:
| (In thousands) | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |||||||||||||||||||||||||||||||||||||
| Amortizing principal repayments | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
2026 Secured Notes. In 2021, the Co-Issuers issued $700.0 million of 8.500 % Senior Secured Second Lien Notes due 2026 to eligible purchasers pursuant to Rule 144A and Regulation S of the Securities Act, at a price of 98.5 % of their face value. Additionally, in November 2022, in connection with the 2022 DJ Acquisitions, the Co-Issuers issued an additional $85.0 million of 2026 Secured Notes at a price of 99.26 % of their face value.The Co-Issuers pay interest on the 2026 Secured Notes semi-annually in cash in arrears on April 15 and October 15 of each year, commencing on April 15, 2022, and will be jointly and severally guaranteed, on a senior second-priority secured basis (subject to permitted liens), by the Partnership and each restricted subsidiary of the Partnership (other than the Co-Issuers) that is an obligor under the ABL Agreement, or under the Co-Issuers’ 2025 Senior Notes on the issue date of the 2026 Secured Notes.
The 2026 Secured Notes are effectively subordinated to any of our or the guarantors’ current and future secured first lien indebtedness, including indebtedness incurred under the ABL Facility, to the extent of the value of the collateral securing such indebtedness, and our and the guarantors’ current and future debt that is secured by liens on assets other than the collateral, to the extent of the value of such assets. The 2026 Secured Notes are structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2026 Secured Notes. The 2026 Secured Notes are effectively equal to our and the guarantors’ obligations under any future second lien indebtedness and effectively senior to all of our future junior lien indebtedness and existing and future unsecured indebtedness, including our outstanding senior unsecured notes, to the extent of the value of the collateral, and senior to any of our future subordinated indebtedness. The 2026 Secured Notes will mature on October 15, 2026.
Before October 15, 2023, the Co-Issuers may redeem the 2026 Secured Notes, in whole or in part, at a price equal to 100 % of their principal amount, plus a make-whole premium, together with accrued and unpaid interest to, but not including the redemption date. On and after October 15, 2023, the Co-Issuers may redeem all or part of the 2026 Secured Notes at redemption prices (expressed as percentages of principal amount) equal to: (a) 104.250 % for the twelve-month period beginning October 15, 2023; (b) 102.125 % for the twelve-month period beginning October 15, 2024; and (c) 100.000 % for the twelve-month period beginning on October 15, 2025 and at any time thereafter, in each case plus accrued and unpaid interest, if any, to, but not including, the redemption date. As of March 31, 2023, the Partnership was in compliance with the financial covenants governing its 2026 Secured Notes.
Starting in the first quarter of 2023 with respect to the fiscal year ended 2022, and continuing annually through the fiscal year ended 2025, the Partnership is required under the terms of the 2026 Secured Notes Indenture to, if it has Excess Cash Flow (as defined in the 2026 Secured Notes Indenture), and subject to its ability to make such an offer under the ABL Facility, offer to purchase an amount of the 2026 Secured Notes, at 100 % of the principal amount plus accrued and unpaid interest, equal to
15
Generally, if the Partnership does not offer to purchase designated annual amounts of its 2026 Secured Notes or reduce its first lien capacity under the 2026 Secured Notes Indenture per annum from 2023 through 2025, the interest rate on the 2026 Secured Notes is subject to certain rate escalations. Per the terms of the 2026 Secured Notes Indenture, the designated amounts are to offer to purchase $50.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2023, otherwise the interest rate shall automatically increase by 50 basis points per annum; $100.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2024, otherwise the interest rate shall automatically increase by 100 basis points per annum (minus any amount previously increased); and $200.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2025, otherwise the interest rate shall automatically increase by 200 basis points per annum (minus any amount previously increased). Based on the amount of the Partnership’s Excess Cash Flow for the fiscal year ended 2022, the Partnership was not able to make offers to purchase in the designated amount for the fiscal year ended 2022; as a result, the interest rate on the 2026 Secured Notes increased 50 basis points to 9.00 % effective with the first payment on April 1, 2023.
To the extent the Partnership makes an offer to purchase, and the offer is not fully accepted by the holders of the 2026 Secured Notes, the Partnership may use any remaining amount not accepted for any purpose not prohibited by the 2026 Secured Notes Indenture or the ABL Facility.
2025 Senior Notes. In February 2017, the Co-Issuers co-issued the 2025 Senior Notes. The Partnership pays interest on the 2025 Senior Notes semi-annually in cash in arrears on April 15 and October 15 of each year. The 2025 Senior Notes are senior, unsecured obligations and rank equally in right of payment with all of the Partnership’s existing and future senior obligations. The 2025 Senior Notes are effectively subordinated in right of payment to all of the Partnership’s secured indebtedness, to the extent of the collateral securing such indebtedness.
The Co-Issuers have the right to redeem all or part of the 2025 Senior Notes at a redemption price of 101.438 % (with the redemption price declining ratably each year to 100.00 % on April 15, 2023), plus accrued and unpaid interest, if any, to, but not including the redemption date.
As of March 31, 2023, the Partnership was in compliance with the financial covenants governing its 2025 Senior Notes.
9. FINANCIAL INSTRUMENTS
Fair Value. A summary of the estimated fair value of our debt financial instruments follows.
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
Carrying Value (1) | Estimated fair value (Level 2) | Carrying Value (1) | Estimated fair value (Level 2) | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| 2025 Senior Notes | $ | $ | $ | $ | |||||||||||||||||||
| 2026 Secured Notes | |||||||||||||||||||||||
________
(1) Excludes applicable unamortized debt issuance costs and debt discounts.
The carrying values on the balance sheets of the ABL Facility and Permian Transmission Term Loan represents their fair value due to their floating interest rates. The fair values of the 2026 Secured Notes and 2025 Senior Notes are based on an average of nonbinding broker quotes as of March 31, 2023 and December 31, 2022. The use of different market assumptions or valuation methodologies may have a material effect on their estimated fair value.
Deferred earn-out. As a result of the acquisition of Sterling DJ, the Partnership assumed a deferred earn-out liability, which is remeasured each reporting period. As of March 31, 2023 and December 31, 2022, the estimated fair value of the deferred earn-out liability was $5.4 million and $5.2 million, respectively, and was estimated using a discounted cash flow technique based on estimated future fresh water deliveries and appropriate discount rates. Given the unobservable nature of the inputs, the fair value measurement of the deferred earn-out is deemed to use Level 3 inputs. The deferred earn-out sits within Centennial Water Pipelines LLC, one of the Partnership’s unrestricted subsidiaries.
Interest Rate Swaps. In connection with the Permian Transmission Term Loan, formerly the Permian Transmission Credit Facility, the Partnership entered into amortizing interest rate swap agreements. As of March 31, 2023 and December 31, 2022, the outstanding notional amounts of interest rate swaps were $137.6 million and $139.8 million, respectively. These interest rate swaps manage exposure to variability in expected cash flows attributable to interest rate risk. Interest rate swaps convert a
16
10. PARTNERS' CAPITAL AND MEZZANINE CAPITAL
Common Units. An update of the number of issued and outstanding common limited partner units is as follows for the period from December 31, 2022 to March 31, 2023.
| Common Units | |||||
| Units, December 31, 2022 | |||||
Common units issued for SMLP LTIP, net | |||||
| Units, March 31, 2023 | |||||
Series A Preferred Units. As of March 31, 2023, the Partnership had 65,508 Series A Preferred Units outstanding and $24.1 million of accrued and unpaid distributions on its Series A Preferred Units.
Series A Preferred Unit Exchange Offers. In January 2022, the Partnership completed an offer to exchange its Series A Preferred Units for newly issued common units (the “2022 Preferred Exchange Offer”), whereby it issued 2,853,875 SMLP common units, net of units withheld for withholding taxes, in exchange for 77,939 Series A Preferred Units. As a result of the transaction, the Partnership recognized a deemed contribution of $20.9 million from the Series A Preferred Unit holders to the common unit holders.
Subsidiary Series A Preferred Units. The Partnership records its Subsidiary Series A Preferred Units at fair value upon issuance, net of issuance costs, and subsequently records an effective interest method accretion amount each reporting period to accrete the carrying value to a most probable redemption value that is based on a predetermined internal rate of return measure. If the Partnership elects to make payment-in-kind (“PIK”) distributions to holders of its Subsidiary Series A Preferred Units, these PIK distributions increase the liquidation preference on each Subsidiary Series A Preferred Unit. Net Income (Loss) attributable to our common units includes adjustments for PIK distributions and redemption accretion.
As of March 31, 2023, the Partnership had 93,039
If the Subsidiary Series A Preferred Units were redeemed on March 31, 2023, the redemption amount would be $121.2 million when considering the applicable multiple of invested capital metric and make-whole amount provisions contained in the Subsidiary Series A Preferred Unit agreement.
The following table shows the change in our Subsidiary Series A Preferred Unit balance from January 1, 2023 to March 31, 2023, net of $2.1 million and $2.2 million of unamortized issuance costs at March 31, 2023 and December 31, 2022, respectively:
| (In thousands) | |||||
| Balance at December 31, 2022 | $ | ||||
Redemption accretion, net of issuance cost amortization | |||||
Cash distribution (includes a $ | ( | ||||
| Balance at March 31, 2023 | $ | ||||
Cash Distribution Policy. The Partnership suspended its cash distributions to holders of its common units, commencing with respect to the quarter ended March 31, 2020. Upon the resumption of distributions, the Partnership Agreement requires that it distribute all available cash, subject to reserves established by its General Partner, within 45 days after the end of each quarter to unitholders of record on the applicable record date. The amount of distributions paid under this policy is subject to fluctuations based on the amount of cash the Partnership generates from its business and the decision to make any distribution is determined by the General Partner, taking into consideration the terms of the Partnership Agreement. There were no distributions paid during the three months ended March 31, 2023 or during the twelve months ended December 31, 2022.
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11. EARNINGS PER UNIT
The following table details the components of EPU.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands, except per-unit amounts) | |||||||||||
| Numerator for basic and diluted EPU: | |||||||||||
| Allocation of net loss among limited partner interests: | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Less: Net income attributable to Subsidiary Series A Preferred Units | ( | ( | |||||||||
| Net loss attributable to Summit Midstream Partners, LP | $ | ( | $ | ( | |||||||
| Less: Net income attributable to Series A Preferred Units | $ | ( | $ | ( | |||||||
| Add: Deemed capital contribution from 2022 Preferred Exchange Offer | |||||||||||
| Net loss attributable to common limited partners | $ | ( | $ | ||||||||
| Denominator for basic and diluted EPU: | |||||||||||
| Weighted-average common units outstanding – basic | |||||||||||
| Effect of nonvested phantom units | |||||||||||
Weighted-average common units outstanding – diluted | |||||||||||
| Net income per limited partner unit: | |||||||||||
Common unit – basic | $ | ( | $ | ||||||||
Common unit – diluted | $ | ( | $ | ||||||||
Nonvested anti-dilutive phantom units excluded from the calculation of diluted EPU | |||||||||||
12. SUPPLEMENTAL CASH FLOW INFORMATION
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Supplemental cash flow information: | |||||||||||
| Cash interest paid | $ | $ | |||||||||
| Noncash investing and financing activities: | |||||||||||
| Capital expenditures in trade accounts payable (period-end accruals) | $ | $ | |||||||||
| Accretion of Subsidiary Series A Preferred Units, net of issuance cost amortization | $ | $ | |||||||||
| 2022 Preferred Exchange Offer | $ | $ | |||||||||
13. UNIT-BASED AND NONCASH COMPENSATION
SMLP Long-Term Incentive Plan. The Partnership’s Long-Term Incentive Plan (“SMLP LTIP”) provides for equity awards to eligible officers, employees, consultants and directors of the Partnership, thereby linking the recipients’ compensation directly to SMLP’s performance. Significant items to note:
•For the three-month period ended March 31, 2023, the Partnership granted 212,893 time-based phantom units and associated distribution equivalent rights to employees in connection with the Partnership’s annual incentive compensation award cycle. These awards had a grant date fair value of $16.00 per common unit and vest ratably over a 3-year period.
•For the three-month period ended March 31, 2023, the Partnership granted 110,478 performance-based phantom units and associated distribution equivalent rights to certain members of management in connection with the
18
Partnership’s annual incentive compensation award cycle. The grant date fair value of these awards total $2.2 million.
•For the three-month period ended March 31, 2023, the Partnership issued 38,100 common units to the Partnership’s six independent directors in connection with their annual compensation plan. These awards had a grant date fair value of $16.00 per common unit and vested immediately.
•As of March 31, 2023, approximately 0.5 million common units remained available for future issuance under the SMLP LTIP, which includes the impact of 0.7 million granted but unvested phantom units.
14. COMMITMENTS AND CONTINGENCIES
Environmental Matters. Although the Partnership believes that it is in material compliance with applicable environmental regulations, the risk of environmental remediation costs and liabilities are inherent in pipeline ownership and operation. Furthermore, the Partnership can provide no assurances that significant environmental remediation costs and liabilities will not be incurred in the future. The Partnership is currently not aware of any material contingent liabilities that exist with respect to environmental matters, except as noted below.
As of March 31, 2023, the Partnership has recognized (i) a current liability for remediation effort expenditures expected to be incurred within the next 12 months and (ii) a noncurrent liability for estimated remediation expenditures expected to be incurred subsequent to March 31, 2024. Each of these amounts represent the Partnership’s best estimate for costs expected to be incurred. Neither of these amounts have been discounted to their present value.
An update of the Partnership’s undiscounted accrued environmental remediation is as follows and is primarily related to the 2015 Blacktail Release and other environmental remediation activities, as detailed below.
| (In thousands) | |||||
| Accrued environmental remediation, December 31, 2022 | $ | ||||
Payments made | ( | ||||
Changes in estimates | ( | ||||
| Accrued environmental remediation, March 31, 2023 | $ | ||||
In 2015, the Partnership learned of the rupture of a four-inch produced water gathering pipeline on the Meadowlark Midstream system near Williston, North Dakota (“2015 Blacktail Release”). On August 4, 2021, subsidiaries of the Partnership entered into the following agreements to resolve the U.S. federal and North Dakota state governments’ environmental claims with respect to the 2015 Blacktail Release: (i) a Consent Decree with the U.S. Department of Justice (“DOJ”), the U.S. Environmental Protection Agency (“EPA”), and the State of North Dakota (“Consent Decree”); (ii) a Plea Agreement with the United States (“Plea Agreement”); and (iii) a Consent Agreement with the North Dakota Industrial Commission (“Consent Agreement” together with the Consent Decree and Plea Agreement, the “Global Settlement”). As of March 31, 2023 and December 31, 2022, the accrued loss liability for the 2015 Blacktail Release was $28.3
Key terms of the Global Settlement included (i) payment of penalties and fines totaling $36.3 million, consisting of $1.25 million in natural resource damages payable to federal and state governments, a $25.0 million payable to the federal government over 5 years, and a $10.0 million payable to state governments over six years , with interest applied to unpaid amounts accruing at a fixed rate of 3.25 %, and of which $6.7 million is expected to be paid within the next twelve months; (ii) continuation of remediation efforts at the site of the 2015 Blacktail Release; (iii) other injunctive relief including but not limited to control room management, environmental management system audit, training, and reporting; (iv) guilty pleas by Defendant subsidiary for (a) one charge of negligent discharge of a harmful quantity of oil and (b) one charge of knowing failure to immediately report a discharge of oil; and (v) organizational probation for a minimum period of three years from sentencing, including payment in full of certain components of the fines and penalty amounts. The agreements comprising the Global Settlement were subject to the approval of the U.S. District Court for the District of North Dakota (the “U.S. District Court”). The U.S. District Court entered an order making the civil components of the Global Settlement effective on September 28, 2021 and accepted the sentencing in the Plea Agreement on December 6, 2021, completing approval of the Global Settlement.
In conjunction with the criminal proceedings under the Plea Agreement, the U.S. District Court received two claims for restitution, including claims for diminution in property value and the cost of additional environmental testing. The prosecution notified the U.S District Court that the government declined to support the claims, citing “insufficient evidence to support the claims.” Defendant subsidiary of the Partnership has responded that restitution is not applicable in this matter because claimants did not provide any supporting evidence for their claims that showed any harm, and because the plea agreement in this matter does not permit restitution sought by the claimants. On August 4, 2022, the U.S. District Court denied the claims.
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Subsidiaries of the Partnership are also participating in two proceedings before the EPA as a result of the Plea Agreement becoming effective. Following the U.S. District Court’s entering judgment on Defendant subsidiary’s guilty plea to one count of negligent discharge of produced water in violation of the Clean Water Act, Defendant subsidiary was statutorily debarred by operation of law pursuant to 33 U.S.C. § 1368(a) to participate in federal awards performed at the “violating facility,” which EPA determined to be the Marmon subsystem of the produced water gathering system in North Dakota. The scope and effect of the debarment as defined do not materially affect our operations. Defendant has submitted a petition for reinstatement, which was denied by the EPA’s suspension and debarment office (“SDO”) on July 11, 2022. The SDO determined that the term of probation in the Plea Agreement was the appropriate period of time to demonstrate Defendant subsidiary’s change of corporate attitude, policies, practices, and procedures. The Partnership and certain subsidiaries have also received a show cause notice from the EPA requesting us to “show cause” why SDO should not issue a Notice of Proposed Debarment to the Defendant subsidiary and certain affiliates under 2 C.F.R. § 180.800(d), to which we have responded.
Legal Proceedings. The Partnership is involved in various litigation and administrative proceedings arising in the ordinary course of business. In the opinion of management, any liabilities that may result from these claims or those arising in the ordinary course of business would not individually or in the aggregate have a material adverse effect on the Partnership's financial position or results of operations.
15. SEGMENT INFORMATION
As of March 31, 2023, the Partnership’s reportable segments are:
•Rockies – Includes the Partnership’s wholly owned midstream assets located in the Williston Basin and the DJ Basin. In September 2022, the Partnership completed the sale of Bison Midstream and its gas gathering system in Burke and Mountrail Counties, North Dakota to a subsidiary of Steel Reef. Additionally, in December 2022 the Partnership completed the acquisitions of Sterling DJ and Outrigger DJ and their related midstream infrastructure. For additional information regarding these acquisitions and divestitures, see Note 3 - Acquisitions and Divestitures.
•Permian – Includes the Partnership’s equity method investment in Double E and its wholly owned Lane G&P System, which was sold on June 30, 2022 to Matador. For additional information regarding the sale of the Lane G&P System, see Note 3 - Acquisitions and Divestitures.
•Northeast – Includes the Partnership’s wholly owned midstream assets located in the Utica and Marcellus shale plays and the equity method investment in Ohio Gathering that is focused on the Utica Shale.
•Piceance – Includes the Partnership’s wholly owned midstream assets located in the Piceance Basin.
•Barnett – Includes the Partnership’s wholly owned midstream assets located in the Barnett Shale.
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Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable; or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items and transaction costs.
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
Assets: | |||||||||||
| Rockies | $ | $ | |||||||||
| Permian | |||||||||||
| Northeast | |||||||||||
| Piceance | |||||||||||
| Barnett | |||||||||||
Total reportable segment assets | |||||||||||
| Corporate and Other | |||||||||||
Total assets | $ | $ | |||||||||
Segment adjusted EBITDA by reportable segment follows.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Reportable segment adjusted EBITDA | |||||||||||
| Rockies | $ | $ | |||||||||
| Permian | |||||||||||
| Northeast | |||||||||||
| Piceance | |||||||||||
| Barnett | |||||||||||
Total of reportable segments' measures of profit | $ | $ | |||||||||
A reconciliation of income or loss before income taxes and income from equity method investees to total of reportable segments' measures of profit follows.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
Reconciliation of income (loss) before income taxes and income from equity method | |||||||||||
| investees to total of reportable segments' measures of profit: | |||||||||||
Loss before income taxes and income from equity method investees | $ | ( | $ | ( | |||||||
| Add: | |||||||||||
Corporate and Other expense | |||||||||||
Interest expense | |||||||||||
Depreciation and amortization (1) | |||||||||||
Proportional adjusted EBITDA for equity method investees | |||||||||||
Adjustments related to capital reimbursement activity | ( | ( | |||||||||
Unit-based and noncash compensation | |||||||||||
| (Gain) loss on asset sales, net | ( | ||||||||||
Long-lived asset impairment | |||||||||||
Total of reportable segments' measures of profit | $ | $ | |||||||||
________
(1) Includes the amortization expense associated with our favorable gas gathering contracts as reported in other revenues.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of the Partnership and its subsidiaries for the periods since December 31, 2022. As a result, the following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report and the MD&A and the audited consolidated financial statements and related notes that are included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information. This discussion contains forward-looking statements that constitute our plans, estimates and beliefs. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those discussed in Forward-Looking Statements. Actual results may differ materially from those contained in any forward-looking statements.
Overview
We are a value-driven limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in unconventional resource basins, primarily shale formations, in the continental United States.
Our financial results are driven primarily by volume throughput across our gathering systems and by expense management. We generate the majority of our revenues from the gathering, compression, treating and processing services that we provide to our customers. A majority of the volumes that we gather, compress, treat and/or process have a fixed-fee rate structure which enhances the stability of our cash flows by providing a revenue stream that is not subject to direct commodity price risk. We also earn a portion of our revenues from the following activities that directly expose us to fluctuations in commodity prices: (i) the sale of physical natural gas and/or NGLs purchased under percentage-of-proceeds or other processing arrangements with certain of our customers in the Rockies and Piceance segments, (ii) the sale of natural gas we retain from certain Barnett segment customers, (iii) the sale of condensate we retain from our gathering services in the Piceance segment and (iv) additional gathering fees that are tied to the performance of certain commodity price indexes which are then added to the fixed gathering rates.
We also have indirect exposure to changes in commodity prices such that persistently low commodity prices may cause our customers to delay and/or cancel drilling and/or completion activities or temporarily shut-in production, which would reduce the volumes of natural gas and crude oil (and associated volumes of produced water) that we gather. If certain of our customers cancel or delay drilling and/or completion activities or temporarily shut-in production, the associated MVCs, if any, ensure that we will earn a minimum amount of revenue. Commodity prices have increased and remain at higher levels primarily due to recent production cuts by OPEC+ and Russia’s invasion of Ukraine which began in February 2022, which mitigates the risk of cancelled or delayed drilling and/or completion activities.
22
The following table presents certain consolidated and reportable segment financial data. For additional information on our reportable segments, see the "Segment Overview for the Three Months Ended March 31, 2023 and 2022" section included herein.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Net loss | $ | (14,163) | $ | (5) | |||||||
| Reportable segment adjusted EBITDA | |||||||||||
Northeast | $ | 17,854 | $ | 20,068 | |||||||
Rockies | 23,130 | 15,830 | |||||||||
Permian | 5,073 | 4,149 | |||||||||
Piceance | 13,983 | 15,768 | |||||||||
Barnett | 7,027 | 9,286 | |||||||||
| Net cash provided by operating activities | $ | 49,695 | $ | 46,046 | |||||||
Capital expenditures (1) | 16,438 | 8,703 | |||||||||
| Investment in Double E equity method investee | 3,500 | 8,444 | |||||||||
| Repayments on ABL Facility | (13,000) | (34,000) | |||||||||
| Repayments on Permian Transmission Term Loan | (2,519) | (1,095) | |||||||||
________
(1)See "Liquidity and Capital Resources" herein to the unaudited condensed consolidated financial statements for additional information on capital expenditures.
Trends and Outlook
Our business has been, and we expect our future business to continue to be, affected by the following key trends:
•Ongoing impact of the current Russia-Ukraine conflict and the international sanctions against Russia on commodity prices;
•Natural gas, NGL and crude oil supply and demand dynamics;
•Production from U.S. shale plays;
•Capital markets availability and cost of capital; and
•Inflation and shifts in operating costs.
Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results. For additional information, see the "Trends and Outlook" section of MD&A included in the 2022 Annual Report.
Strategic DJ Acquisitions. On December 1, 2022, we completed the 2022 DJ Acquisitions for total cash consideration of $305.0 million, subject to post-closing adjustments. As a result of the 2022 DJ Acquisitions, we acquired natural gas gathering and processing systems, a crude oil gathering system, freshwater rights, and a subsurface freshwater delivery system in the DJ Basin. The acquired assets of Outrigger DJ and Sterling DJ are located in Weld, Morgan, and Logan Counties, Colorado and Cheyenne County, Nebraska. In 2023, we will spend time and resources integrating the 2022 DJ Acquisitions into our existing DJ Basin assets and expect to attain capital and operating synergies in the future.
Cost structure optimization and portfolio management. The Partnership intends to improve its capital structure in the future by reducing its indebtedness with free cash flow, and when appropriate, it may pursue opportunistic transactions with the objective of increasing long term unitholder value. This may include opportunistic acquisitions (such as the 2022 DJ Acquisitions), divestitures (such as the disposition of the Lane G&P System and of Bison Midstream), re-allocation of capital to new or existing areas, and development of joint ventures involving our existing midstream assets or new investment opportunities. We believe that our internally generated cash flow, our ABL Facility, the Permian Term Loan Facility, and access to debt (such as the Additional 2026 Secured Notes) or equity will be adequate to finance our strategic initiatives. To attain our overall
23
corporate strategic objectives, we may conduct an asset divestiture, or divestitures, at a transaction valuation that is less than the net book value of the divested asset.
Ongoing impact of the current Russia-Ukraine conflict and the international sanctions against Russia on commodity prices. Although the Partnership does not operate in Ukraine, Russia or other parts of Europe, there are certain impacts arising from Russia’s invasion of Ukraine that could have a potential effect on the Partnership, including, but not limited to, volatility in currencies and commodity prices, higher inflation, cost and supply chain pressures and availability and disruptions in banking systems and capital markets. As of the date of filing, there have been no material impacts on the Partnership.
Based on recently updated production forecasts and 2023 development plans from our customers, we currently expect that 2023 activity will be higher than 2022 and be at an activity level near our historical periods prior to COVID-19.
Impact of recent increases in interest rates. Increases in interest rates could adversely affect our future ability to obtain financing or materially increase the cost of existing and any additional financing. Since March 2022, the Federal Reserve has raised its target range for the federal funds rate ten times, to a current target range of 5.00-5.25%. The Federal Reserve may pause such rate hikes or increase its target range further. As of March 31, 2023, we had approximately $1.0 billion principal of fixed-rate debt, $317.0 million outstanding under our variable rate ABL Facility and $152.8 million outstanding under the variable rate Permian Transmission Term Loan (see Note 8 - Debt). As of March 31, 2023, we had $137.6 million of interest rate exposure hedged to offset the impact of changes in interest rates on our Permian Transmission Term Loan.
The Inflation Reduction Act of 2022 could accelerate the transition to a low carbon economy and will impose new costs on our operations. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA 2022”) was signed into law pursuant to the budget reconciliation process. The IRA 2022 contains hundreds of billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, among other provisions. These incentives could further accelerate the transition of the U.S. economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for the oil and gas and consequently materially and adversely affect our business and results of operations. We do not currently believe this legislation will have a material impact on our consolidated financial statements.
How We Evaluate Our Operations
We conduct and report our operations in the midstream energy industry through five reportable segments: Northeast, Rockies, Permian, Piceance and Barnett. Each of our reportable segments provides midstream services in a specific geographic area and our reportable segments reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations. For additional information see Note 15 - Segment Information.
Our management uses a variety of financial and operational metrics to analyze our consolidated and segment performance. We view these metrics as important factors in evaluating our profitability. These metrics include:
•throughput volume;
•revenues;
•operation and maintenance expenses;
•capital expenditures; and
•segment adjusted EBITDA.
We review these metrics on a regular basis for consistency and trend analysis. There have been no changes in the composition or characteristics of these metrics during the three months ended March 31, 2023.
Additional Information. For additional information, see the "Results of Operations" section herein and the notes to the unaudited condensed consolidated financial statements. For additional information on how these metrics help us manage our business, see the "How We Evaluate Our Operations" section of MD&A included in the 2022 Annual Report. For information on impending accounting changes that are expected to materially impact our financial results reported in future periods, see Note 2 – Summary of Significant Accounting Policies and Recently Issued Accounting Standards Applicable to the Partnership.
24
Results of Operations
Consolidated Overview for the Three Months Ended March 31, 2023 and 2022
The following table presents certain consolidated financial and operating data.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Revenues: | |||||||||||
| Gathering services and related fees | $ | 57,371 | $ | 64,020 | |||||||
| Natural gas, NGLs and condensate sales | 49,163 | 22,458 | |||||||||
| Other revenues | 5,965 | 9,648 | |||||||||
Total revenues | 112,499 | 96,126 | |||||||||
| Costs and expenses: | |||||||||||
| Cost of natural gas and NGLs | 30,882 | 22,251 | |||||||||
| Operation and maintenance | 23,972 | 17,062 | |||||||||
| General and administrative | 9,987 | 12,960 | |||||||||
| Depreciation and amortization | 29,824 | 30,445 | |||||||||
| Transaction costs | 302 | 246 | |||||||||
| Acquisition integration costs | 1,502 | — | |||||||||
| (Gain) loss on asset sales, net | (68) | 3 | |||||||||
| Long-lived asset impairment | — | 14 | |||||||||
Total costs and expenses | 96,401 | 82,981 | |||||||||
| Other income (expense), net | 56 | — | |||||||||
| Gain (loss) on interest rate swaps | (1,273) | 7,028 | |||||||||
| Gain on sale of business | 18 | — | |||||||||
| Interest expense | (34,223) | (24,163) | |||||||||
Loss before income taxes and equity method investment income | (19,324) | (3,990) | |||||||||
| Income tax (expense) benefit | 252 | (50) | |||||||||
| Income from equity method investees | 4,909 | 4,035 | |||||||||
Net loss | $ | (14,163) | $ | (5) | |||||||
Volume throughput (1): | |||||||||||
Aggregate average daily throughput - natural gas (MMcf/d) | 1,185 | 1,306 | |||||||||
Aggregate average daily throughput - liquids (Mbbl/d) | 74 | 65 | |||||||||
________
(1)Excludes volume throughput for Ohio Gathering and Double E. For additional information, see the Northeast and Permian sections herein under the caption “Segment Overview for the Three Months Ended March 31, 2023 and 2022”.
25
Volumes – Gas. Natural gas throughput volumes decreased 121 MMcf/d for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily reflecting:
•a volume throughput decrease of 150 MMcf/d for the Northeast segment.
•a volume throughput decrease of 25 MMcf/d for the Piceance segment.
•a volume throughput decrease of 27 MMcf/d for the Permian segment.
•a volume throughput increase of 79 MMcf/d for the Rockies segment.
•a volume throughput increase of 2 MMcf/d for the Barnett segment.
Volumes – Liquids. Crude oil and produced water throughput volumes at the Rockies segment increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily as a result of 53 new well connections that came online subsequent to March 31, 2022, offset by natural production declines and weather related downtime.
For additional information on volumes, see the "Segment Overview for the Three Months Ended March 31, 2023 and 2022" section herein.
Revenues. Total revenues increased $16.4 million during the three months ended March 31, 2023 compared to the prior year period, comprised of a $26.7 million increase in natural gas, NGLs and condensate sales, offset by a $6.6 million decrease in gathering services and related fees and a $3.7 million decrease in Other Revenue.
Gathering Services and Related Fees. Gathering services and related fees decreased $6.6 million compared to the three months ended March 31, 2022, primarily reflecting:
•a $1.0 million decrease in the Piceance, primarily due to decreased volume throughput and the expiration of a customer’s minimum volume commitment;
•a $1.9 million decrease in the Northeast, primarily due to decreased volume throughput;
•a $2.5 million decrease in the Rockies, primarily due to the sale of Bison Midstream in September 2022.
Natural Gas, NGLs and Condensate Sales. Natural gas, NGLs and condensate revenues increased $26.7 million compared to the three months ended March 31, 2022, primarily reflecting:
•a $33.7 million increase in revenues in the Rockies, primarily as a result of the 2022 DJ Acquisitions in December 2022; offset by
•a $6.9 million decrease in revenues from the Permian as a result of the disposition of the Lane G&P System in June 2022.
Costs and Expenses. Total costs and expenses increased $13.4 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Cost of Natural Gas and NGLs. Cost of natural gas and NGLs increased $8.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the acquisition of Sterling DJ in December 2022.
Operation and Maintenance. Operation and maintenance expense increased $6.9 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily as a result of the acquisitions of Sterling DJ and Outrigger DJ in December 2022, partially offset by the 2022 dispositions of the Lane G&P System in June 2022 and Bison Midstream in September 2022.
General and Administrative. General and administrative expense decreased $3.0 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to $2.4 million of employee severance costs incurred during the three months ended March 31, 2022.
Acquisition Integration Costs. Acquisition integration costs increased $1.5 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 as a result of our December 2022 acquisitions of Sterling DJ and Outrigger DJ.
Depreciation and Amortization. Depreciation and amortization expense decreased $0.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Interest Expense. The increase in interest expense for the three month period ended March 31, 2023, compared to three months ended March 31, 2022, primarily resulted from higher interest costs from the issuance of the additional principal amounts of the 2026 Secured Notes, borrowings on the Permian Transmission Term Loan, higher amortization expense of debt issuance costs
26
and an increase of 50 basis points on the interest rate of our 2026 Secured Notes. Interest expense does not include the impact of gains or losses from our interest rate swaps entered into for the Permian Transmission Credit Facility.
27
Segment Overview for the Three Months Ended March 31, 2023 and 2022
Northeast.
Volume throughput for the Northeast reportable segment follows.
| Northeast | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| Average daily throughput (MMcf/d) | 591 | 741 | (20)% | ||||||||||||||
| Average daily throughput (MMcf/d) (Ohio Gathering) | 636 | 598 | 6% | ||||||||||||||
Volume throughput for the Northeast, excluding Ohio Gathering, decreased 20% compared to the three months ended March 31, 2022, primarily due to natural production declines as well as frac-protect activities during the three months ended March 31, 2023 which decreased average daily throughput by approximately 20 MMcf/d for the three months ended March 31, 2023, partially offset by 18 well connections that came online subsequent to March 31, 2022.
Volume throughput for the Ohio Gathering system increased 6% compared to the three months ended March 31, 2022, primarily as a result of 38 new well connections that came online subsequent to March 31, 2022, partially offset by natural production declines and approximately 50 MMcf/d of volume shut-in for frac-protect activities.
Financial data for our Northeast reportable segment follows.
| Northeast | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Gathering services and related fees | $ | 12,755 | $ | 14,636 | (13)% | ||||||||||||
Total revenues | 12,755 | 14,636 | (13)% | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Operation and maintenance | 2,085 | 1,647 | 27% | ||||||||||||||
| General and administrative | 210 | 183 | 15% | ||||||||||||||
| Depreciation and amortization | 4,453 | 4,300 | 4% | ||||||||||||||
| Gain on asset sales, net | — | (10) | * | ||||||||||||||
Total costs and expenses | 6,748 | 6,120 | 10% | ||||||||||||||
| Add: | |||||||||||||||||
Depreciation and amortization | 4,453 | 4,300 | |||||||||||||||
Adjustments related to capital reimbursement activity | (20) | (20) | |||||||||||||||
Gain on asset sales, net | — | (10) | |||||||||||||||
| Proportional adjusted EBITDA for Ohio Gathering | 7,414 | 7,276 | 2% | ||||||||||||||
| Other | — | 6 | |||||||||||||||
Segment adjusted EBITDA | $ | 17,854 | $ | 20,068 | (11)% | ||||||||||||
* Not considered meaningful
Three months ended March 31, 2023. Segment adjusted EBITDA decreased $2.2 million, compared to the three months ended March 31, 2022 primarily as a result of a $1.9 million decrease in revenue from gathering services and related fees as a result of lower volume throughput discussed above.
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Rockies.
Volume throughput for our Rockies reportable segment follows.
| Rockies | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
Aggregate average daily throughput - natural gas (MMcf/d) | 108 | 29 | 272% | ||||||||||||||
Aggregate average daily throughput - liquids (Mbbl/d) | 74 | 65 | 14% | ||||||||||||||
Natural gas. Natural gas volume throughput increased 272% compared to the three months ended March 31, 2022, primarily reflecting the 2022 DJ Acquisitions in December 2022 and 35 new well connections that came online subsequent to March 31, 2022, partially offset by the sale of Bison Midstream in September 2022. Aggregate average daily throughput for the three months ended March 31, 2022 includes 11 MMcf/d related to Bison Midstream assets, which have been sold.
Liquids. Liquids volume throughput increased 14% compared to the three months ended March 31, 2022, primarily associated with 53 new well connections that came online subsequent to March 31, 2022, including 23 which came online in the three months ended March 31, 2023.
Financial data for our Rockies reportable segment follows.
| Rockies | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Gathering services and related fees | $ | 15,303 | $ | 17,789 | (14)% | ||||||||||||
| Natural gas, NGLs and condensate sales | 47,329 | 13,659 | 247% | ||||||||||||||
| Other revenues | 2,619 | 5,157 | (49)% | ||||||||||||||
Total revenues | 65,251 | 36,605 | 78% | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of natural gas and NGLs | 29,808 | 13,422 | 122% | ||||||||||||||
| Operation and maintenance | 12,069 | 6,212 | 94% | ||||||||||||||
| General and administrative | 673 | 684 | (2%) | ||||||||||||||
| Depreciation and amortization | 8,378 | 7,448 | 12% | ||||||||||||||
| Integration costs | 411 | — | * | ||||||||||||||
| (Gain) loss on asset sales, net | (57) | 14 | * | ||||||||||||||
| Long-lived asset impairment | — | 13 | * | ||||||||||||||
Total costs and expenses | 51,282 | 27,793 | 85% | ||||||||||||||
| Add: | |||||||||||||||||
Depreciation and amortization | 8,378 | 7,448 | |||||||||||||||
| Integration costs | 411 | — | |||||||||||||||
Adjustments related to capital reimbursement activity | 404 | (478) | |||||||||||||||
(Gain) loss on asset sales, net | (57) | 14 | |||||||||||||||
| Long-lived asset impairment | — | 13 | |||||||||||||||
| Other | 25 | — | 21 | ||||||||||||||
Segment adjusted EBITDA | $ | 23,130 | $ | 15,830 | 46% | ||||||||||||
* Not considered meaningful
29
Three months ended March 31, 2023. Segment adjusted EBITDA increased $7.3 million, compared to the three months ended March 31, 2022 primarily due to the 2022 DJ Acquisitions in December 2022, partially offset by the sale of Bison Midstream in September 2022.
30
Permian.
Volume throughput for our Permian reportable segment follows.
| Permian | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| Average daily throughput (MMcf/d) | n/a | 27 | n/a | ||||||||||||||
| Average daily throughput (MMcf/d) (Double E) | 264 | 187 | 41% | ||||||||||||||
On June 30, 2022, we completed the sale of our Lane G&P System.
Volume throughput for Double E increased 41% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, as a result of increased shipments on the Double E Pipeline.
The following table presents the MVC quantities that Double E’s shippers have contracted to with firm transportation service agreements and related negotiated rate agreements.
| (Amounts in MMBTU/day) | Weighted average MVC quantities for the year ended December 31, | ||||
| 2023 | 831,096 | ||||
| 2024 | 986,803 | ||||
| 2025 | 1,000,000 | ||||
| 2026 | 1,000,000 | ||||
| 2027 | 1,000,000 | ||||
| 2028 | 1,000,000 | ||||
| 2029 | 1,000,000 | ||||
| 2030 | 1,000,000 | ||||
| 2031 | 879,452 | ||||
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Financial data for our Permian reportable segment follows.
| Permian | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Gathering services and related fees | $ | — | $ | 1,847 | * | ||||||||||||
| Natural gas, NGLs and condensate sales | — | 6,867 | * | ||||||||||||||
| Other revenues | 893 | 1,019 | (12%) | ||||||||||||||
Total revenues | 893 | 9,733 | (91)% | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of natural gas and NGLs | — | 7,092 | * | ||||||||||||||
| Operation and maintenance | — | 1,304 | * | ||||||||||||||
| General and administrative | 44 | 363 | (88)% | ||||||||||||||
| Depreciation and amortization | — | 1,497 | * | ||||||||||||||
Total costs and expenses | 44 | 10,256 | * | ||||||||||||||
| Add: | |||||||||||||||||
Depreciation and amortization | — | 1,497 | |||||||||||||||
| Proportional adjusted EBITDA for Double E | 4,224 | 3,175 | 33% | ||||||||||||||
Segment adjusted EBITDA | $ | 5,073 | $ | 4,149 | 22% | ||||||||||||
*Not considered meaningful
Three months ended March 31, 2023. Segment adjusted EBITDA increased $0.9 million compared to the three months ended March 31, 2022, primarily as a result of an increase in proportional adjusted EBITDA from our equity method investment in Double E.
32
Piceance.
Volume throughput for our Piceance reportable segment follows.
| Piceance | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
Aggregate average daily throughput (MMcf/d) | 287 | 312 | (8%) | ||||||||||||||
Volume throughput decreased 8% compared to the three months ended March 31, 2022, as a result of natural production decline, partially offset by 8 new well connections that came online in March 2023.
Financial data for our Piceance reportable segment follows.
| Piceance | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Gathering services and related fees | $ | 19,119 | $ | 20,071 | (5%) | ||||||||||||
Natural gas, NGLs and condensate sales | 1,641 | 1,895 | (13)% | ||||||||||||||
| Other revenues | 1,426 | 1,275 | 12% | ||||||||||||||
Total revenues | 22,186 | 23,241 | (5%) | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of natural gas and NGLs | 1,074 | 1,108 | (3)% | ||||||||||||||
| Operation and maintenance | 5,749 | 5,273 | 9% | ||||||||||||||
| General and administrative | 239 | 328 | (27)% | ||||||||||||||
| Depreciation and amortization | 12,881 | 12,780 | 1% | ||||||||||||||
| Gain on asset sales, net | (4) | — | * | ||||||||||||||
Total costs and expenses | 19,939 | 19,489 | 2% | ||||||||||||||
| Add: | |||||||||||||||||
Depreciation and amortization | 12,881 | 12,780 | |||||||||||||||
Adjustments related to capital reimbursement activity | (1,245) | (899) | |||||||||||||||
Gain on asset sales, net | (4) | — | |||||||||||||||
| Other | 104 | 135 | |||||||||||||||
Segment adjusted EBITDA | $ | 13,983 | $ | 15,768 | (11%) | ||||||||||||
________
*Not considered meaningful
Three months ended March 31, 2023. Segment adjusted EBITDA decreased $1.8 million, compared to the three months ended March 31, 2022, primarily reflecting a decrease in volume throughput as a result of natural production declines and reduction in a certain customer’s minimum volume commitment that expired in 2022, partially offset by 8 new well connections that came online in March 2023.
33
Barnett.
Volume throughput for our Barnett reportable segment follows.
| Barnett | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| Average daily throughput (MMcf/d) | 199 | 197 | 1% | ||||||||||||||
Volume throughput increased 1% compared to the three months ended March 31, 2022, primarily as a result of 12 wells that came online subsequent to March 31, 2022, partially offset by natural production declines and approximately 6 MMcf/d of volume shut-in for frac-protect activities.
Financial data for our Barnett reportable segment follows.
| Barnett | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenues: | |||||||||||||||||
| Gathering services and related fees | $ | 10,194 | $ | 9,677 | 5% | ||||||||||||
| Natural gas, NGLs and condensate sales | 193 | — | * | ||||||||||||||
Other revenues (1) | 1,064 | 2,063 | (48%) | ||||||||||||||
Total revenues | 11,451 | 11,740 | (2%) | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Operation and maintenance | 4,069 | 2,124 | 92% | ||||||||||||||
| General and administrative | 265 | 242 | 10% | ||||||||||||||
| Depreciation and amortization | 3,805 | 3,792 | — | ||||||||||||||
Total costs and expenses | 8,139 | 6,158 | 32% | ||||||||||||||
| Add: | |||||||||||||||||
Depreciation and amortization | 4,039 | 4,026 | |||||||||||||||
Adjustments related to capital reimbursement activity | (324) | (327) | |||||||||||||||
| Other | — | 5 | |||||||||||||||
Segment adjusted EBITDA | $ | 7,027 | $ | 9,286 | (24)% | ||||||||||||
________
*Not considered meaningful
(1)Includes the amortization expense associated with our favorable gas gathering contracts as reported in Other revenues.
Three months ended March 31, 2023. Segment adjusted EBITDA decreased $2.3 million, compared to the three months ended March 31, 2022, primarily as a result of $1.7 million of commercial settlements that benefited the segment’s financial results in the first quarter of 2022 and did not occur for the remainder of 2022 or during the three months ended March 31, 2023.
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Corporate and Other Overview for the Three Months Ended March 31, 2023 and 2022
Corporate and Other represents those results that are not specifically attributable to a reportable segment or that have not been allocated to our reportable segments, including certain general and administrative expense items, transaction costs and interest expense.
| Corporate and Other | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2023 | 2022 | Percentage Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Operation and maintenance | $ | — | $ | 502 | * | ||||||||||||
| General and administrative | 8,556 | 11,157 | (23)% | ||||||||||||||
| Transaction costs | 302 | 246 | * | ||||||||||||||
| Interest expense | 34,223 | 24,163 | 42% | ||||||||||||||
________
* Not considered meaningful
General and Administrative. General and administrative expense decreased by $2.6 million, compared to the three months ended March 31, 2022, primarily related to $2.4 million of employee severance costs incurred during the three months ended March 31, 2022.
Interest Expense. The increase in interest expense for the three months ended March 31, 2023, compared to three months ended March 31, 2022, primarily resulted from higher interest costs from the issuance of the additional principal amounts of the 2026 Secured Notes and borrowings on the Permian Transmission Term Loan, higher amortization expense of debt issuance costs and an increase of 50 basis points on the interest rate of our 2026 Secured Notes. Interest expense does not include the impact of gains or losses from our interest rate swaps entered into for the Permian Transmission Credit Facility.
Liquidity and Capital Resources
We rely primarily on internally generated cash flows as well as external financing sources, including our ABL Facility, and the issuance of debt, equity and preferred equity securities, and proceeds from potential asset divestitures to fund our capital expenditures. We believe that our ABL Facility and Permian Transmission Credit Facility, together with internally generated cash flows and access to debt or equity capital markets, will be adequate to finance our operations for the next twelve months without adversely impacting our liquidity.
We may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. As of March 31, 2023, our material off-balance sheet arrangements and transactions include (i) letters of credit outstanding against our ABL Facility aggregating to $4.3 million, and (ii) letters of credit outstanding against our Permian Transmission Credit Facility aggregating to $10.5 million. There are no other transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect our liquidity or availability of our capital resources.
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Indebtedness Compliance as of March 31, 2023. As of March 31, 2023, we were in compliance with all covenants contained in the Senior Notes, the ABL Facility and the Permian Transmission Credit Facility. The ABL Facility requires that Summit Holdings not permit (i) the First Lien Net Leverage Ratio (as defined in the ABL Agreement) as of the last day of any fiscal quarter to be greater than 2.50:1.00, or (ii) the Interest Coverage Ratio (as defined in the ABL Agreement) as of the last day of any fiscal quarter to be less than 2.00:1.00. As of March 31, 2023, the First Lien Net Leverage Ratio and Interest Coverage Ratio was 1.24:1.00 and 2.37:1.00, respectively.
Credit Agreements and Financing Activities
ABL Facility. As of March 31, 2023, we had a $400.0 million revolving ABL Facility with a maturity date of May 1, 2026. As of March 31, 2023, the outstanding balance of the ABL Facility was $317.0 million and the available borrowing capacity totaled $78.7 million after giving effect to the issuance thereunder of $4.3 million of outstanding but undrawn irrevocable standby letters of credit.
2025 Senior Notes. In February 2017, the Co-Issuers co-issued $500.0 million of 5.75% senior unsecured notes maturing April 15, 2025 (the “2025 Senior Notes”). As of March 31, 2023, the outstanding balance of the 2025 Senior Notes was $259.5 million. The 2025 Senior Notes are senior, unsecured obligations and rank equally in right of payment with all of our existing and future senior obligations. The 2025 Senior Notes are effectively subordinated in right of payment to all of our secured indebtedness, to the extent of the collateral securing such indebtedness. As of March 31, 2023, the Co-Issuers could redeem all or part of the 2025 Senior Notes at a redemption price of 101.438% (and such redemption price has subsequently declined to 100.000% on April 15, 2023), plus accrued and unpaid interest, if any, to, but not including, the redemption date.
2026 Secured Notes. In November 2021, we issued $700.0 million of the 2026 Secured Notes, at a price of 98.5% of face value. Additionally, in November 2022, in connection with the 2022 DJ Acquisitions, we issued an additional $85.0 million of 2026 Secured Notes at a price of 99.26% of their face value. The Co-Issuers pay interest on the 2026 Secured Notes semi-annually on April 15 and October 15 of each year, and the 2026 Secured Notes are jointly and severally guaranteed, on a senior second-priority secured basis (subject to permitted liens), by us and each of our restricted subsidiaries that is an obligor under the ABL Facility, or under the 2025 Senior Notes on the issue date of the 2026 Secured Notes. As of March 31, 2023, the outstanding balance of the 2026 Secured Notes was $785.0 million.
The 2026 Secured Notes will mature on October 15, 2026; provided that, if the outstanding amount of the 2025 Senior Notes (or any refinancing indebtedness in respect thereof that has a final maturity on or prior to the date that is 91 days after the Initial Maturity Date (as defined in the 2026 Secured Notes Indenture)) is greater than or equal to $50.0 million on January 14, 2025, which is 91 days prior to the scheduled maturity date of the 2025 Senior Notes, then the 2026 Secured Notes will mature on January 14, 2025.
Starting in the first quarter of 2023 with respect to the fiscal year ended 2022, and continuing annually through the fiscal year ended 2025, we are required under the terms of the 2026 Secured Notes Indenture to, if it has Excess Cash Flow (as defined in the 2026 Secured Notes Indenture), and subject to its ability to make such an offer under the ABL Facility, offer to purchase an amount of the 2026 Secured Notes, at 100% of the principal amount plus accrued and unpaid interest, equal to 100% of the Excess Cash Flow generated in the prior year. Generally, if we do not offer to purchase designated annual amounts of its 2026 Secured Notes or reduce its first lien capacity under the 2026 Secured Notes Indenture per annum from 2023 through 2025, the interest rate on the 2026 Secured Notes is subject to certain rate escalations. Per the terms of the 2026 Secured Notes Indenture, the designated amounts are $50.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2023, otherwise the interest rate shall automatically increase by 50 basis points per annum; $100.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2024, otherwise the interest rate shall automatically increase by 100 basis points per annum (minus any amount previously increased); and $200.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2025, otherwise the interest rate shall automatically increase by 200 basis points per annum (minus any amount previously increased).
To the extent we make an offer to purchase, and the offer is not fully accepted by the holders of the 2026 Secured Notes, we may use any remaining amount not accepted for any purpose not prohibited by the 2026 Secured Notes Indenture, or the ABL Facility. Based on the amount of our Excess Cash Flow for the fiscal year ended 2022, we were not able to make offers to purchase in the designated amount for the fiscal year ended 2022; as a result, the interest rate on the 2026 Secured Notes increased 50 basis points to 9.00% effective with the first payment on April 1, 2023, resulting in increased annual interest expense of approximately $3.9 million.
We may in the future use a combination of cash, secured or unsecured borrowings and issuances of our common units or other securities and the proceeds from asset sales to retire or refinance our outstanding debt or Series A Preferred Units through privately negotiated transactions, open market repurchases, redemptions, exchange offers, tender offers or otherwise, but we are under no obligation to do so.
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Cash Flows
The components of the net change in cash and cash equivalents were as follows:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| 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) | |||||||
Operating activities.
Cash flows provided by operating activities for the three months ended March 31, 2023 primarily reflected:
•a loss of $14.2 million plus positive adjustments of $43.7 million for non-cash operating items.
•a $20.1 million increase in working capital accounts.
Cash flows provided by operating activities for the three months ended March 31, 2022 primarily reflected:
•a $12.5 million increase in working capital accounts; and
•positive adjustments of $33.6 million for non-cash items.
Investing activities.
Cash flows used in investing activities during the three months ended March 31, 2023 primarily reflected:
•$16.4 million of cash outflows for capital expenditures; and
•$3.5 million of cash investments in the Double E Project.
Cash flows used in investing activities during the three months ended March 31, 2022 primarily reflected:
•$8.4 million for cash investments in the Double E Project;
•$8.7 million of cash outflows for capital expenditures; offset by
•$1.9 million of cash proceeds from the sale of compressors.
Financing activities.
Cash flows used in financing activities during the three months ended March 31, 2023 primarily reflected:
•$13.0 million of cash outflow for repayments on the ABL Facility,
•$2.5 million of cash outflow for repayments on the Permian Transmission Term Loan.
Cash flows used in financing activities during the three months ended March 31, 2022 primarily reflected:
•$34.0 million of cash outflow for repayments on the ABL Facility.
Capital Requirements
Overall.
Our business is capital intensive, requiring significant investment for the maintenance of existing gathering systems and the acquisition or construction and development of new gathering systems and other midstream assets and facilities. Our Partnership agreement requires that we categorize our capital expenditures as either:
•maintenance capital expenditures, which are cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets or for the acquisition of existing, or the construction or development of, new capital assets) made to maintain our long-term operating income or operating capacity; or
•expansion capital expenditures, which are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating income or operating capacity over the long term.
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For the three months ended March 31, 2023, cash paid for capital expenditures totaled $16.4 million which included $4.2 million of maintenance capital expenditures. For the three months ended March 31, 2023, there were no contributions to Ohio Gathering and we contributed $3.5 million to Double E.
We rely primarily on internally generated cash flows as well as external financing sources, including commercial bank borrowings and the issuance of debt, equity and preferred equity securities, and proceeds from potential asset divestitures to fund our capital expenditures. We believe that our internally generated cash flows, our ABL Facility and the Permian Transmission Credit Facility, and access to debt or equity capital markets, will be adequate to finance our operations for the next twelve months without adversely impacting our liquidity.
We estimate that our 2023 capital program will range from $45.0 million to $65.0 million, including between $10.0 million and $15.0 million of maintenance capital expenditures. We estimate that our 2023 investment in our Double E equity method investee will be approximately $5.0 million.
There are a number of risks and uncertainties that could cause our current expectations to change, including, but not limited to, (i) the ability to reach agreements with third parties; (ii) prevailing conditions and outlook in the natural gas, crude oil and NGLs and markets, and (iii) our ability to obtain financing from commercial banks, the capital markets, or other financing sources.
Excess Cash Flow Offers to Purchase.
Starting in the first quarter of 2023 with respect to the fiscal year ended 2022, and continuing annually through the fiscal year 2025, we are required under the terms of the 2026 Secured Notes Indenture to, if it has Excess Cash Flow (as defined in the 2026 Secured Notes Indenture), and subject to its ability to make such an offer under the ABL Facility, offer to purchase an amount of the 2026 Secured Notes, at 100% of the principal amount plus accrued and unpaid interest, equal to 100% of the Excess Cash Flow generated in the prior year. Excess Cash Flow is generally defined as consolidated cash flow minus the sum of capital expenditures and cash payments in respect of permitted investments and permitted restricted payments.
Generally, if we do not offer to purchase designated annual amounts of its 2026 Secured Notes or reduce its first lien capacity under the 2026 Secured Notes Indenture per annum from 2023 through 2025, the interest rate on the 2026 Secured Notes is subject to certain rate escalations. Per the terms of the 2026 Secured Notes Indenture, the designated amounts are to offer to purchase $50.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2023, otherwise the interest rate shall automatically increase by 50 basis points per annum; $100.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2024, otherwise the interest rate shall automatically increase by 100 basis points per annum (minus any amount previously increased); and $200.0 million aggregate principal amount of the 2026 Secured Notes by April 1, 2025, otherwise the interest rate shall automatically increase by 200 basis points per annum (minus any amount previously increased). Based on the amount of our Excess Cash Flow for the fiscal year ended 2022, we did not make offers to purchase the designated amount for the fiscal year ended 2022; and as a result, the interest rate on the 2026 Secured Notes increased 50 basis points to 9.00% effective with the first payment on April 1, 2023, resulting in increased annual interest expense of approximately $3.9 million. To the extent we makes an offer to purchase, and the offer is not fully accepted by the holders of the 2026 Secured Notes, we may use any remaining amount not accepted for any purpose not prohibited by the 2026 Secured Notes Indenture or the ABL Facility.
Credit and Counterparty Concentration Risks
We examine the creditworthiness of counterparties to whom we extend credit and manage our exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees.
Certain of our customers may be temporarily unable to meet their current obligations. While this may cause disruption to cash flows, we believe that we are properly positioned to deal with the potential disruption because the vast majority of our gathering assets are strategically positioned at the beginning of the midstream value chain. The majority of our infrastructure is connected directly to our customers’ wellheads and pad sites, which means our gathering systems are typically the first third-party infrastructure through which our customers’ commodities flow and, in many cases, the only way for our customers to get their production to market.
We have exposure due to nonperformance under our MVC contracts whereby a potential customer, may not have the wherewithal to make its MVC shortfall payments when they become due. We typically receive payment for all prior-year MVC shortfall billings in the quarter immediately following billing. Therefore, our exposure to risk of nonperformance is limited to and accumulates during the current year-to-date contracted measurement period.
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Off-Balance Sheet Arrangements
During the three months ended March 31, 2023, there were no material changes to the off-balance sheet obligations disclosed in our 2022 Annual Report.
Summarized Financial Information
The supplemental summarized financial information below reflects SMLP's separate accounts, the combined accounts of Summit Holdings and Finance Corp. (together, the “Co-Issuers”) and its guarantor subsidiaries (the “Guarantor Subsidiaries” and together with the Co-Issuers, the “Obligor Group”) for the dates and periods indicated. The financial information of the Obligor Group is presented on a combined basis and intercompany balances and transactions between the Co-Issuers and Guarantor Subsidiaries have been eliminated. There were no reportable transactions between the Co-Issuers and Obligor Group and the subsidiaries that were not issuers or guarantors of the Senior Notes.
Payments to holders of the Senior Notes are affected by the composition of and relationships among the Co-Issuers, the Guarantor Subsidiaries and Permian Holdco and Summit Permian Transmission, both of which are unrestricted subsidiaries of SMLP and are not issuers or guarantors of the Senior Notes. The assets of our unrestricted subsidiaries are not available to satisfy the demands of the holders of the Senior Notes. In addition, our unrestricted subsidiaries are subject to certain contractual restrictions related to the payment of dividends, and other rights in favor of their non-affiliated stakeholders, that limit their ability to satisfy the demands of the holders of the Senior Notes.
On June 30, 2022, we completed the sale of all the equity interests in Summit Permian and Permian Finance to a third party. Additionally, on September 19, 2022, we completed the sale of Bison Midstream to a third party. In connection with these dispositions, the status of Bison Midstream, Summit Permian and Permian Finance as guarantor subsidiaries, was modified prior to the occurrence of each respective disposition.
On December 1, 2022, we completed the acquisition of Outrigger DJ for cash consideration of $165.0 million, subject to post-closing adjustments, and Sterling DJ for cash consideration of $140.0 million, subject to post-closing adjustments. In connection with the acquisitions, Summit DJ - O, LLC (formerly Outrigger DJ Midstream, LLC), Summit DJ - O Operating, LLC (formerly Outrigger DJ Operating, LLC), Summit DJ - S, LLC (formerly Sterling Energy Investments, LLC), Grasslands Energy Marketing, LLC and Centennial Water Pipelines, LLC became newly acquired entities. With the exception of Centennial Water Pipeline, LLC, all acquired entities guarantee our obligations under the 2025 Senior Notes and 2026 Secured Notes.
The summarized financial information below presents the activities and balances of Bison Midstream, Summit Permian and Summit Finance as guarantor subsidiaries for all summarized income statement periods and balance sheet dates presented in which they were owned by the Partnership. Bison Midstream, Summit Permian and Permian Finance were not included in the Partnership’s balance sheet as of December 31, 2022.
A list of each of SMLP’s subsidiaries that is a guarantor, issuer or co-issuer of our registered securities subject to the reporting requirements in Release 33-10762 is filed as Exhibit 22.1 to this report.
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Summarized Balance Sheet Information. Summarized balance sheet information as of March 31, 2023 and December 31, 2022 follows.
| March 31, 2023 | |||||||||||
| SMLP | Obligor Group | ||||||||||
| (In thousands) | |||||||||||
| Assets | |||||||||||
| Current assets | $ | 3,523 | $ | 85,033 | |||||||
| Noncurrent assets | 8,943 | 2,118,019 | |||||||||
| Liabilities | |||||||||||
| Current liabilities | $ | 8,347 | $ | 100,571 | |||||||
| Noncurrent liabilities | 2,147 | 1,400,180 | |||||||||
| December 31, 2022 | |||||||||||
| SMLP | Obligor Group | ||||||||||
| (In thousands) | |||||||||||
| Assets | |||||||||||
| Current assets | $ | 2,553 | $ | 86,443 | |||||||
| Noncurrent assets | 8,274 | 2,130,052 | |||||||||
| Liabilities | |||||||||||
| Current liabilities | $ | 16,345 | $ | 79,841 | |||||||
| Noncurrent liabilities | 2,172 | 1,410,370 | |||||||||
Summarized Statements of Operations Information. For the purposes of the following summarized statements of operations, we allocate a portion of general and administrative expenses recognized at the SMLP parent to the Obligor Group to reflect what those entities' results would have been had they operated on a stand-alone basis. Summarized statements of operations for the three months ended March 31, 2023 and for the year ended December 31, 2022 follow.
| Three Months Ended March 31, 2023 | |||||||||||
| SMLP | Obligor Group | ||||||||||
| (In thousands) | |||||||||||
| Total revenues | $ | — | $ | 112,480 | |||||||
| Total costs and expenses | 597 | 94,101 | |||||||||
Loss before income taxes and income from equity method investees | (597) | (12,926) | |||||||||
| Income from equity method investees | — | 3,191 | |||||||||
| Net loss | $ | (345) | $ | (9,735) | |||||||
| Year Ended December 31, 2022 | |||||||||||
| SMLP | Obligor Group | ||||||||||
| (In thousands) | |||||||||||
| Total revenues | $ | — | $ | 369,592 | |||||||
| Total costs and expenses | 10,505 | 411,640 | |||||||||
Loss before income taxes and income from equity method investees | (10,505) | (136,912) | |||||||||
| Income from equity method investees | — | 13,358 | |||||||||
| Net loss | $ | (10,827) | $ | (123,554) | |||||||
Critical Accounting Estimates
We prepare our financial statements in accordance with GAAP. These principles are established by the FASB. We employ methods, estimates and assumptions based on currently available information when recording transactions resulting from business operations. There have been no significant changes to our critical accounting estimates from those disclosed on Form 10-K for the fiscal year ended December 31, 2022.
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Forward-Looking Statements
Investors are cautioned that certain statements contained in this report as well as in periodic press releases and certain oral statements made by our officers and employees during our presentations are “forward-looking” statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions, or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries are also forward-looking statements. These forward-looking statements involve various risks and uncertainties, including, but not limited to, those described in Part II. Item 1A. Risk Factors included in this report.
Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond the control of our management team. All forward-looking statements in this report and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements in this paragraph. These risks and uncertainties include, among others:
•our decision whether to pay, or our ability to grow, our cash distributions;
•fluctuations in natural gas, NGLs and crude oil prices, including as a result of political or economic measures taken by various countries or OPEC;
•the extent and success of our customers' drilling and completion efforts, as well as the quantity of natural gas, crude oil, fresh water deliveries, and produced water volumes produced within proximity of our assets;
•the current and potential future impact of the COVID-19 pandemic on our business, results of operations, financial position or cash flows;
•failure or delays by our customers in achieving expected production in their natural gas, crude oil and produced water projects;
•competitive conditions in our industry and their impact on our ability to connect hydrocarbon supplies to our gathering and processing assets or systems;
•actions or inactions taken or nonperformance by third parties, including suppliers, contractors, operators, processors, transporters and customers, including the inability or failure of our shipper customers to meet their financial obligations under our gathering agreements and our ability to enforce the terms and conditions of certain of our gathering agreements in the event of a bankruptcy of one or more of our customers;
•our ability to divest of certain of our assets to third parties on attractive terms, which is subject to a number of factors, including prevailing conditions and outlook in the natural gas, NGL and crude oil industries and markets;
•the ability to attract and retain key management personnel;
•commercial bank and capital market conditions and the potential impact of changes or disruptions in the credit and/or capital markets;
•changes in the availability and cost of capital and the results of our financing efforts, including availability of funds in the credit and/or capital markets;
•restrictions placed on us by the agreements governing our debt and preferred equity instruments;
•the availability, terms and cost of downstream transportation and processing services;
•natural disasters, accidents, weather-related delays, casualty losses and other matters beyond our control;
•operational risks and hazards inherent in the gathering, compression, treating and/or processing of natural gas, crude oil and produced water;
•our ability to comply with the terms of the agreements comprising the Global Settlement;
•weather conditions and terrain in certain areas in which we operate;
•physical and financial risks associated with climate change;
•any other issues that can result in deficiencies in the design, installation or operation of our gathering, compression, treating, processing and freshwater facilities;
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•timely receipt of necessary government approvals and permits, our ability to control the costs of construction, including costs of materials, labor and rights-of-way and other factors that may impact our ability to complete projects within budget and on schedule;
•our ability to finance our obligations related to capital expenditures, including through opportunistic asset divestitures or joint ventures and the impact any such divestitures or joint ventures could have on our results;
•the effects of existing and future laws and governmental regulations, including environmental, safety and climate change requirements and federal, state and local restrictions or requirements applicable to oil and/or gas drilling, production or transportation;
•changes in tax status;
•the effects of litigation;
•interest rates;
•changes in general economic conditions; and
•certain factors discussed elsewhere in this report.
Developments in any of these areas could cause actual results to differ materially from those anticipated or projected or cause a significant reduction in the market price of our common units, preferred units and senior notes.
The foregoing list of risks and uncertainties may not contain all of the risks and uncertainties that could affect us. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this document may not in fact occur. Accordingly, undue reliance should not be placed on these statements. We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law.
Information About Us
Investors should note that we make available, free of charge on our website at www.summitmidstream.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investors section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our interest rate risk exposure, which is largely related to our indebtedness, has not changed materially since December 31, 2022. As of March 31, 2023, we had approximately $1.0 billion principal of fixed-rate debt, $317.0 million outstanding under our variable rate ABL Facility and $152.8 million outstanding under the variable rate Permian Transmission Term Loan (see Note 8 - Debt). As of March 31, 2023, we had $137.6 million of interest rate exposure hedged to offset the impact of changes in interest rates on our Permian Transmission Term Loan. While existing fixed-rate debt mitigates the downside impact of fluctuations in interest rates, future issuances of long-term debt could be impacted by increases in interest rates, which could result in higher overall interest costs. In addition, the borrowings under our ABL Facility, which have a variable interest rate, also expose us to the risk of increasing interest rates. For additional information, see the "Interest Rate Risk" section included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the 2022 Annual Report and updates to our risk factors included herein.
Commodity Price Risk
We generate a majority of our revenues pursuant to primarily long-term and fee-based gathering agreements, many of which include MVCs and areas of mutual interest. Our direct commodity price exposure relates to (i) the sale of physical natural gas and/or NGLs purchased under percentage-of-proceeds and other processing arrangements with certain of our customers in the Rockies and Piceance segments, (ii) the sale of natural gas we retain from certain Barnett segment customers and (iii) the sale of condensate we retain from certain gathering services in the Piceance segment. Our gathering agreements with certain Barnett customers permit us to retain a certain quantity of natural gas that we sell to offset the power costs we incur to operate our electric-drive compression assets. We manage our direct exposure to natural gas and power prices through the use of forward power purchase contracts with wholesale power providers that require us to purchase a fixed quantity of power at a fixed heat rate based on prevailing natural gas prices on the Henry Hub Index. We sell retainage natural gas at prices that are based on the Atmos Zone 3 Index. By basing the power prices on a system and basin-relevant market, we are able to closely associate the relationship between the compression electricity expense and natural gas retainage sales. We do not enter into risk management contracts for speculative purposes. Our current commodity price risk exposure has not changed materially since December 31, 2022. For additional information, see the "Commodity Price Risk" section included in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the 2022 Annual Report.
Item 4. Controls and Procedures.
Under the direction of our General Partner's Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2023 and (ii) no change in internal control over financial reporting occurred during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the ordinary course of business, we are not currently a party to any significant legal or governmental proceedings, except as described below. In addition, we are not aware of any significant legal or governmental proceedings contemplated to be brought against us, under the various environmental protection statutes to which we are subject.
Fiberspar Corporation. On May 3, 2022, Fiberspar Corporation filed a petition in state court alleging over $5.0 million owed but not paid for orders of pipeline product from Fiberspar. The petition asserts causes of action for breach of contract and suit on sworn account. A civil action on the same claims had been filed by Fiberspar in 2016 but was dismissed without prejudice pursuant to a standstill and tolling agreement that expired in 2021. We filed an answer on September 6, 2022 denying Fiberspar’s claims and asserting counter claims. The case is pending in the District Court of Harris County, Texas. It is currently set for trial in July 2023, but the parties have filed a joint motion for a continuance seeking a trial date in or after October 2023. We are unable to predict the final outcome of this matter.
Global Settlement. On August 4, 2021, the Partnership and several of its subsidiaries entered into agreements to resolve government investigations into the previously disclosed 2015 Blacktail Release, from a pipeline owned and operated by Meadowlark Midstream, which at the time was a wholly owned subsidiary of Summit Investments, (together with Meadowlark Midstream, the “Companies”). The Companies entered into the following agreements to resolve the U.S. federal and North Dakota state governments’ environmental claims against the Companies with respect to the 2015 Blacktail Release: (i) a Consent Decree with (a) the DOJ, on behalf of the U.S. Environmental Protection
Agency and the U.S. Department of Interior, and (b) the State of North Dakota, on behalf of the North Dakota Department of Environmental Quality and the North Dakota Game and Fish Department, lodged with the U.S. District Court; (ii) a Plea Agreement with the United States, by and through the U.S. Attorney for the District of North Dakota, and the Environmental Crimes Section of the DOJ; and (iii) a Consent Agreement with the North Dakota Industrial Commission.
The Consent Decree provides for, among other requirements and subject to the conditions therein, (i) payment of total civil penalties and reimbursement of assessment costs of $21.25 million, with the federal portion of penalties payable over up to five years and the state portion of penalties payable over up to six years, with interest accruing at a fixed rate of 3.25%; (ii) continuation of remediation efforts at the site of the 2015 Blacktail Release; (iii) other injunctive relief including but not limited to control room management, an environmental management system audit, training, and reporting; and (iv) no admission of liability to the U.S. or North Dakota. The Consent Decree was entered by the U.S. District Court on September 28, 2021.
The Consent Agreement settles a complaint brought by the NDIC in an administrative action against the Companies for alleged violations of the North Dakota Administrative Code (“NDAC”) arising from the 2015 Blacktail Release on the following terms: (i) the Companies admit to three counts of violating the NDAC; (ii) the Companies agree to follow the terms and conditions of the Consent Decree, including payment of penalty and reimbursement amounts set forth in the Consent Decree; and (iii) specified conditions in the Consent Decree regarding operation and testing of certain existing produced water pipelines shall survive until those pipelines are properly abandoned.
Under the Plea Agreement, the Companies agreed to, among other requirements and subject to the conditions therein, (i) enter guilty pleas for one charge of negligent discharge of a harmful quantity of oil and one charge of knowing failure to immediately report a discharge of oil; (ii) sentencing that includes payment of a fine of $15.0 million plus mandatory special assessments over a period of up to five years with interest accruing at the federal statutory rate; (iii) organizational probation for a minimum period of three years from sentencing, which will include payment in full of certain components of the fines and penalty amounts; and (iv) compliance with the remedial measures in the Consent Decree.
On December 6, 2021, the U.S. District Court accepted the Plea Agreement. This settlement resulted in losses amounting to $36.3 million and will be paid over six years, of which we have paid $8.0 million as of March 31, 2023.
Verdad Resources. Verdad Resources LLC (“Verdad”) filed a complaint in Colorado state court for the district of Weld County against Sterling Energy Investments LLC (“Sterling”), Golden Resources, Inc., and Grasslands Energy Marketing LLC (“Grasslands”) on October 20, 2022, and amended on December 6, 2022 to exclude Golden Resources, Inc. as a defendant. In connection with the 2022 DJ Acquisitions, Sterling and Grasslands became subsidiaries of the Partnership. Verdad claims that Sterling did not have the right to assess marketing fees passed through from Grasslands’ purchase and resale of residue natural gas and natural gas liquids from Sterling. The relief requested by Verdad includes approximately $3.6 million in damages plus pre-judgment interest as well as declaratory relief and recovery of costs. We are unable to predict the final outcome of this matter.
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Highpoint Operating Corporation. Sterling and Highpoint Operating Corporation (“Highpoint”) are parties to a gas gathering agreement (the “Highpoint Agreement”). Sterling sued Highpoint in Colorado state court for the district of Denver County on June 15, 2020, alleging that Highpoint breached the Highpoint Agreement and seeking damages. Highpoint asserted counterclaims alleging that Sterling breached the Highpoint Agreement. In October 2021, after a bench trial, the court found against Sterling and in favor of Highpoint’s counterclaims. The court awarded Highpoint $2.4 million in damages. In December 2021, Sterling posted an appeal bond and filed its Notice of Appeal. In February 2022, the Colorado Court of Appeals granted Sterling’s Motion to Stay Execution of Judgment. On March 7, 2023, Summit DJ-S and Highpoint entered into a Confidential Settlement and Release Agreement that fully resolved all claims between the parties. On March 27, 2023, Highpoint filed a Notice of Satisfaction of Merits Judgment and Costs Award and the matter is now closed.
Sage Natural Resources. In July 2022, the Partnership’s subsidiary DFW Midstream Services LLC filed a petition in the District Court of Dallas County, Texas seeking payment of almost $1.0 million in electric power costs for gathering services provided to Sage Natural Resources, LLC in 2021-2022. Sage has denied the amounts are owed and has filed counterclaims seeking damages and other relief for DFW’s alleged breaches of the gathering agreement. A non-jury trial is currently scheduled for February 2024, and we are unable to predict the final outcome of this matter.
Item 1A. Risk Factors.
The risk factors contained in the Item 1A. Risk Factors of the 2022 Annual Report are incorporated herein by reference except to the extent they address risks arising from or relating to the failure of events described therein to occur, which events have since occurred.
Item 5. Other Information.
None.
Item 6. Exhibits.
45
| Exhibit number | Description | |||||||
| + | ||||||||
| + | ||||||||
| + | ||||||||
| 101.INS | * | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
| 101.SCH | * | Inline XBRL Taxonomy Extension Schema | ||||||
| 101.CAL | * | Inline XBRL Taxonomy Extension Calculation Linkbase | ||||||
| 101.DEF | * | Inline XBRL Taxonomy Extension Definition Linkbase | ||||||
| 101.LAB | * | Inline XBRL Taxonomy Extension Label Linkbase | ||||||
| 101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase | ||||||
| 104 | * | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||
+ Filed herewith.
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. The financial information contained in the XBRL (eXtensible Business Reporting Language)-related documents is unaudited and unreviewed.
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Summit Midstream Partners, LP | |||||
(Registrant) | |||||
By: Summit Midstream GP, LLC (its General Partner) | |||||
| May 5, 2023 | /s/ WILLIAM J. MAULT | ||||
| William J. Mault, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||
47
EXHIBIT 31.1
CERTIFICATIONS
I, Heath Deneke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Summit Midstream Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | May 5, 2023 | /s/ Heath Deneke | |||||||||
| Heath Deneke President, Chief Executive Officer and Director of Summit Midstream GP, LLC (the general partner of Summit Midstream Partners, LP) | |||||||||||
EX 31.1
EXHIBIT 31.2
CERTIFICATIONS
I, William J. Mault, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Summit Midstream Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | May 5, 2023 | /s/ William J. Mault | |||||||||
| William J. Mault Executive Vice President and Chief Financial Officer of Summit Midstream GP, LLC (the general partner of Summit Midstream Partners, LP) | |||||||||||
EX 31.2
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Summit Midstream Partners, LP (the “Registrant”) for the quarterly period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Heath Deneke, as President, Chief Executive Officer and Director of Summit Midstream GP, LLC, the general partner of the Registrant, and William J. Mault, as Executive Vice President and Chief Financial Officer of Summit Midstream GP, LLC, the general partner of the Registrant, each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| /s/ Heath Deneke | ||||||||
| Name: | Heath Deneke | |||||||
| Title: | President, Chief Executive Officer and Director of Summit Midstream GP, LLC (the general partner of Summit Midstream Partners, LP) | |||||||
| Date: | May 5, 2023 | |||||||
| /s/ William J. Mault | ||||||||
| Name: | William J. Mault | |||||||
| Title: | Executive Vice President and Chief Financial Officer of Summit Midstream GP, LLC (the general partner of Summit Midstream Partners, LP) | |||||||
| Date: | May 5, 2023 | |||||||
EX 32.1