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DT Midstream, Inc. (DTM): A Midstream Giant Poised for Continued Growth
Published on September 24, 2024 | Ticker: DTM

DT Midstream, Inc. (DTM) is a leading owner, operator, and developer of an integrated portfolio of natural gas midstream assets. The company's strategic footprint connects key demand centers in the Midwestern U.S., Eastern Canada, and Northeastern U.S. regions to the premium production areas of the Marcellus/Utica and Haynesville natural gas formations.

Business Overview

DT Midstream's business model is underpinned by long-term, fee-based contracts with a diverse customer base that includes natural gas producers, local distribution companies, electric power generators, industrials, and national marketers. This has resulted in stable, predictable cash flows, with the company reporting annual net income of $384 million, annual revenue of $922 million, annual operating cash flow of $1.225 billion, and annual free cash flow of $453 million in its most recent fiscal year.

Recent Developments

In the first quarter of 2024, DT Midstream delivered overall adjusted EBITDA of $245 million, representing a $6 million increase from the prior quarter. The company's Pipeline segment results were in line with the fourth quarter of 2023, reflecting higher firm revenue on the Haynesville Energy Access Project (LEAP), offset by lower short-term revenue. The Gathering segment results were $6 million greater than the fourth quarter of 2023, driven by lower overall operation and maintenance expenses and a ramp-up in contribution from the Ohio Utica gathering system.

Operationally, total gathering volumes across both the Haynesville and Northeast regions averaged approximately 3.1 billion cubic feet per day in the first quarter, in line with the prior quarter. DT Midstream's financial plan and 2024 guidance assume that gathering volumes and adjusted EBITDA will be lower in the second and third quarters due to planned maintenance in the Haynesville as well as expected timing of producer activity. Volumes and EBITDA are expected to increase in the fourth quarter, driven by incremental contributions from new projects and a more constructive market environment for producers.

The company is reaffirming its 2024 adjusted EBITDA guidance range and its 2025 adjusted EBITDA early outlook, reflecting the strong positioning of its assets. DT Midstream has increased its committed capital in 2024 and 2025 to reflect new organic projects reaching final investment decision (FID), with $265 million to $295 million committed in 2024 and approximately $140 million committed in 2025. These projects were already contemplated in the company's guidance, and DT Midstream expects to continue spending within free cash flow in 2024 and 2025.

Outlook

One of the key growth drivers for DT Midstream is the emerging demand for natural gas-fired power generation to support the expansion of data centers and AI-powered technologies. The company is seeing increased inquiries and interest in its Nexus and Vector pipeline systems, which are strategically located to serve these growing demand centers in the Midwest and Mid-Atlantic regions. DT Midstream believes this trend is currently underappreciated by the market and represents a significant opportunity for the company to leverage its integrated asset footprint.

In the Haynesville region, DT Midstream's LEAP system continues to perform well, with the Phase 3 expansion tracking ahead of schedule and on budget. The company is also in active discussions for a potential LEAP Phase 4 expansion, which would further increase the system's total capacity to 1.9 billion cubic feet per day. In the Appalachian Basin, the company's Ohio Utica gathering system began initial volumes in March 2024, with production expected to ramp up over the next 18-24 months as the customer executes on its development plan.

DT Midstream is also making progress on its energy transition initiatives, including the development of a carbon capture and sequestration (CCS) project in Louisiana. The company recently completed the drilling of a Class 5 test well, which was an important milestone in the project's development process. DT Midstream remains on track for a final investment decision on the CCS project in the second half of 2024.

Liquidity

The company's balance sheet and liquidity position remain strong, with approximately $970 million of available liquidity as of March 31, 2024, consisting of cash and cash equivalents and available borrowings under its revolving credit facility. DT Midstream is committed to preserving the strength of its balance sheet and achieving an investment-grade credit rating, and is looking forward to its annual meetings with the rating agencies in early May.

Conclusion

Overall, DT Midstream is well-positioned to continue its growth trajectory, with a diversified portfolio of midstream assets, a strong customer base, and a disciplined approach to capital allocation. The company's focus on executing its organic growth projects, capitalizing on emerging demand trends, and maintaining a robust financial profile positions it for continued success in the years ahead.

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