Summit Midstream Partners, LP (NYSE: SMLP) is a value-driven limited partnership focused on developing, owning, and operating midstream energy infrastructure assets strategically located in unconventional resource basins, primarily shale formations, in the continental United States. The company has demonstrated its ability to adapt to a dynamic industry landscape, as evidenced by its recent strategic divestitures and operational performance.

Financials

For the full year 2023, Summit Midstream Partners reported annual revenue of $458.9 million and a net loss of $38.9 million. The company's annual operating cash flow stood at $126.9 million, while its annual free cash flow reached $58.0 million. These financial metrics showcase the company's ability to generate substantial cash flows despite the challenges faced in the industry.

In the first quarter of 2024, the company reported net income of $132.9 million, adjusted EBITDA of $70.1 million, and capital expenditures of $16.4 million. The strong first-quarter performance was driven by increased volume throughput across the company's reportable segments, as well as the successful execution of strategic initiatives.

Segment Performance

Summit Midstream Partners operates in five reportable segments: Northeast, Rockies, Permian, Piceance, and Barnett. Each segment contributes to the company's overall financial and operational results.

The Northeast segment, which includes the company's equity method investment in Ohio Gathering, reported adjusted EBITDA of $29.0 million in the first quarter of 2024, an increase of 63% compared to the same period in the prior year. This performance was primarily driven by increased volume throughput and the company's proportional adjusted EBITDA from Ohio Gathering.

The Rockies segment, which encompasses the company's assets in the Williston Basin and the DJ Basin, generated adjusted EBITDA of $22.9 million in the first quarter of 2024, remaining relatively consistent with the previous year's quarter. This segment experienced a 15% increase in natural gas volume throughput, partially offset by a decline in liquids volume throughput due to natural production declines.

The Permian segment, which includes the company's 70% interest in the Double E pipeline, reported adjusted EBITDA of $7.3 million in the first quarter of 2024, an increase of 43% compared to the same period in the prior year. This growth was primarily driven by a 77% increase in volume throughput on the Double E pipeline, reflecting the strong demand for residue gas takeaway capacity in the Delaware Basin.

The Piceance segment generated adjusted EBITDA of $15.2 million in the first quarter of 2024, an increase of 9% compared to the same period in the prior year. This performance was supported by a 9% increase in volume throughput, partially offset by natural production declines.

The Barnett segment reported adjusted EBITDA of $5.1 million in the first quarter of 2024, a decrease of 27% compared to the same period in the prior year. This decline was primarily due to lower volume throughput, partially offset by the connection of 4 new wells to the system.

Recent Developments

During the first quarter of 2024, Summit Midstream Partners made significant progress on its strategic initiatives, including the successful completion of the Utica Sale and the Mountaineer Transaction.

The Utica Sale, which closed on March 22, 2024, resulted in total cash proceeds of $625.0 million for the company's ownership interests in Ohio Gathering and midstream assets located in the Utica Shale. This divestiture allowed Summit Midstream Partners to streamline its portfolio and focus on its core Rockies and Permian segments.

Additionally, on May 1, 2024, the company closed the Mountaineer Transaction, selling its Mountaineer Midstream system in West Virginia to Antero Midstream LLC for $70.0 million. This sale further strengthened the company's balance sheet and provided additional financial flexibility to pursue strategic growth opportunities.

Outlook

Looking ahead, Summit Midstream Partners remains well-positioned to capitalize on the favorable industry dynamics. The company's pro forma leverage of around 3.9x, a fully undrawn $400 million revolving credit facility, and over $350 million in pro forma unrestricted cash provide ample liquidity to support its organic growth initiatives and potential bolt-on acquisitions in the Rockies and Permian segments.

The company's Double E pipeline continues to demonstrate strong commercial momentum, with the recent addition of a 75 million cubic feet per day, 10-year take-or-pay commitment from a subsidiary of Matador Resources. Additionally, the company received 150 million cubic feet per day of non-binding, 10-year take-or-pay bids from other third parties during the open season, further solidifying the long-term outlook for the asset.

Summit Midstream Partners has also made significant progress on its previously announced plan to convert the partnership to a C-corporation. The company is on track to file the C-corp proxy statement and seek unitholder approval during the third quarter of 2024, a move that is expected to provide long-term tax savings for current and future shareholders.

Risks and Challenges

While Summit Midstream Partners has demonstrated its ability to navigate the industry's challenges, the company faces several risks and uncertainties that could impact its future performance. These include fluctuations in natural gas, NGL, and crude oil prices, the ability of its customers to maintain production levels, and potential changes in the regulatory environment.

Additionally, the company's leverage, although manageable, remains a key focus area, and its ability to continue deleveraging and achieve its long-term target of sub-3.5x leverage will be crucial for its long-term success.

Conclusion

Summit Midstream Partners has proven its resilience in the face of industry headwinds, as evidenced by its strategic divestitures, operational performance, and strong financial position. The company's focus on its core Rockies and Permian segments, coupled with the continued growth of its Double E pipeline and potential bolt-on acquisitions, positions it well for future success. As Summit Midstream Partners navigates the evolving midstream landscape, investors will closely monitor the company's ability to execute on its strategic initiatives and maintain its financial discipline.