Summit Secures Double E NatGas Pipe Funding, But Permian Prospects Down For 2021
A subsidiary of Summit Midstream Partners LP has finalized financing for the Permian Basin Double E gas pipeline project, which is expected to be in service and under budget by the end of the year.
Summit Permian Transmission LLC has entered into $ 175 million senior secured credit facilities for the development of Double E. Summit has a 70% interest in the project, which would transport 1.35 Bcf / d from the sub-basin of the Permian Delaware at the Waha Hub in West Texas and beyond. The project was sanctioned in June 2019.
Summit management expects Double E to be completed at or below the current capital budget of $ 425 million, with around $ 35 million remaining in unidentified project contingencies. The initial price was around $ 500 million. Summit also issued a $ 16 million letter of credit to support back-end equity contributions if needed. Any additional capital required is not expected to be funded until 2022, after Double E goes live later this year.
“This was a very significant achievement for Summit as it allows us to move a web project forward without using additional cash” from the partnership balance sheet, “thus creating more financial flexibility and a clear path to continue improving the balance sheet to. short term, ”Summit CEO Heath Deneke said last week during the fourth quarter 2020 earnings call.
Double E would not only provide a “cost effective gas transportation solution for our customers”, but would also provide access to downstream markets and could benefit local communities, according to Deneke. “It will also help improve the environment by reducing the need for flaring in Texas and New Mexico.”
ExxonMobil is a flagship shipper and owns a 30% stake in Double E. It is the second joint venture between Summit and the supermajor. ExxonMobil’s XTO Energy Inc. and Summit partnered in 2017 to develop and operate an associated gas collection and processing system to serve Permian operators in New Mexico.
Although oil prices have strengthened significantly in the first two months of 2021, activity in the Permian is expected to slow this year, according to CFO Marc Stratton. Summit reported a nearly 3% sequential drop in volume throughput on its Permian to 4Q2020 systems and said its customers currently only have two drilled but unfinished (DUC) wells behind the system, which management has said. expects management to go live by the end of March.
“These wells represent the only new well connections in the segment in 2021,” Stratton said.
However, the executive expects one of Summit’s customers to continue delivering 10 million cubic feet per day throughput in 2021, which should partially offset natural declines in production.
“There is potential for increased activity in our Permian segment if crude oil prices increase, although latest comments suggest 2021 activity is more likely to be concentrated outside our service area. “, did he declare.
Elsewhere in Lower 48, Summit expects to see 17 well connections in areas inherited from the Piceance Basin and the Barnett and Marcellus Shales this year. The Barnett is expected to see eight wells connected to Summit’s midpoint systems, which would be the first time since 3Q2019 that a new well has been connected.
Nine DUCs are expected to be connected to the company’s Marcellus systems during the first half of the year, according to Stratton. “Volume growth in these systems,” he said, should provide cash flow and be a “significant catalyst” for an existing mature production base.
Summit’s customers also have six DUCs behind the intermediate liquid system in the Williston Basin, and two more behind its gas system. “Although we expect a limited number of connections to the Williston wells in 2021, we believe there is an opportunity for increased activity if crude oil prices continue to rise throughout the year,” Stratton said.
Summit reported that liquids volumes in the Williston increased 2.9% sequentially in 4Q2020 to 71,000 bpd, primarily due to the bringing on line of eight new wells, which were the first new connected wells. since 1Q2020.
And while clients have 20 DUCs behind Summit’s Denver-Julesburg (DJ) pond system, none are expected to be completed in the short term. The company also doesn’t expect any new sink connections on the DJ system for the entire year due to what Stratton called “special situations” for two customers.
One of those clients, he said, is being taken over by another DJ company. “They have publicly revealed that they plan to focus their development opportunities on areas outside of our service area in 2021.”
Summit’s other major DJ client plans to focus 2021 development activities on areas on federal land and away from areas abutting its service area.
“While it’s too early to make predictions beyond 2021, preliminary conversations with customers indicate 2021 could be an anomaly, and we expect new upstream activity behind our DJ system to return. in 2022, ”Stratton said.
In total, Summit expects 45 to 75 wells to be connected to its systems in 2021, up from 140 wells in 2020, 262 in 2019 and 334 in 2018. “So 2021 is definitely low activity for us,” said the CEO. .
Total growth capital expenditure (capex) is expected to be $ 10 to $ 25 million, including approximately $ 10 million for maintenance capital expenditure. Deneke said the majority of the growth capital would be used to accommodate “near-term volume growth in the Utica segment following an incentive agreement we put in place with a client last year.”
Summit reported a net profit of $ 103 million in 4Q2020 ($ 30.45 / share), compared to a net loss of $ 345 million in 4Q2019 (minus $ 59.74). Profit for fiscal 2020 was $ 189 million ($ 73.22 / share), up from the net loss of $ 394 million in 2019 (minus $ 70.50).
Distributable Cash Flow (DCF) for the quarter was $ 44.8 million, down from $ 50.3 million last year. The DCF for the full year was $ 162.8 million, up from $ 176.5 million in 2019.