Business Overview and History
Summit Midstream Corporation (SMC) is a value-driven midstream energy infrastructure company that has undergone a transformative journey in recent years. With a focus on developing, owning, and operating strategically located assets in the heart of unconventional resource basins, SMC has established itself as a key player in the midstream space.
SMC was incorporated in Delaware on May 14, 2024, for the purpose of reorganizing Summit Midstream Partners, LP (SMLP), a master limited partnership that had been publicly traded on the NYSE since 2012. The Corporate Reorganization, which was approved by SMLP unitholders in 2024, resulted in SMLP becoming a wholly-owned subsidiary of SMC, a C-corporation. This strategic move simplified the corporate structure, broadened the investor base, and positioned the company for future growth.
Prior to the Corporate Reorganization, SMLP had built a diversified portfolio of midstream assets, primarily focused on gathering, compression, treating, and processing services for natural gas, crude oil, and produced water in key production basins across the United States. These assets included the Rockies (Williston and DJ Basins), Permian (through its equity investment in the Double E Pipeline), Piceance, and Mid-Con (Barnett Shale and Arkoma Basin) segments.
In 2024, SMC executed a series of strategic transactions that transformed the company's portfolio and balance sheet. This included the divestiture of its Northeast segment for $700 million, which immediately reduced leverage from 5.4x to 3.9x. The company then successfully refinanced its balance sheet in July 2024, issuing new second lien notes and upsizing its credit facility, which increased financial flexibility, reduced interest expense, and extended the nearest debt maturity to 2029.
With the support of unitholders, SMC simplified its corporate structure in August 2024 by converting from a master limited partnership to a C-corporation. Prior to this reorganization, SMLP was treated as a partnership for federal and state income tax purposes, with taxable income or loss generally passed through to its unitholders. Effective August 1, 2024, SMC became subject to federal and state income taxes as a C-corporation. The corporate reorganization was accounted for as a common-control transaction, with SMLP's historical financial statements becoming the historical financial statements of SMC.
Following these strategic moves, SMC shifted its focus to growing the business through value-accretive acquisitions. In December 2024, the company completed the transformative acquisition of Tall Oak Midstream III, a large-scale gas gathering and processing system in the Arkoma Basin. This $425 million transaction, financed through a mix of cash and equity, significantly increased SMC's scale and exposure to natural gas-oriented basins poised for production growth.
Financial Position and Performance
As of December 31, 2024, SMC reported total assets of $2.36 billion and total debt of $993.58 million, resulting in a net debt position of $970.75 million. The company's leverage ratio, as measured by net debt to adjusted EBITDA, stood at 3.9x, down from 5.4x at the beginning of the year. This reduction in leverage was achieved through a combination of strategic divestitures, debt refinancing, and disciplined capital allocation.
For the full year 2024, SMC reported total revenue of $429.62 million, a decrease of 6.4% compared to 2023. This decrease was primarily driven by a 19% decrease in gathering services and related fees, partially offset by a 9% increase in natural gas, NGLs and condensate sales. Adjusted EBITDA for the year was $204.6 million, and the company generated $85.4 million in distributable cash flow. Free cash flow for 2024 was $8.16 million.
In the fourth quarter of 2024, SMC reported revenue of $107.01 million, a net loss of $24.8 million, adjusted EBITDA of $46.2 million, and free cash flow of $6.6 million. This performance was in line with management's expectations and reflected the company's operational execution across its diversified asset base.
The company's financial results for the full year 2024 included: - Net income: -$113.17 million - Operating cash flow: $61.77 million
Liquidity
SMC's liquidity position as of December 31, 2024, included: - Cash: $22.82 million - Available credit: $194.2 million under the $500 million Amended and Restated ABL Facility - Debt/Equity ratio: 1.03x - Current ratio: 0.68x - Quick ratio: 0.68x
These figures indicate that SMC has taken steps to improve its liquidity position, with the extended debt maturity to 2029 and increased financial flexibility suggesting that the company has adequate liquidity to support its operations and growth initiatives.
Operational Highlights and Guidance
During 2024, SMC connected a total of 156 new wells to its gathering systems, exceeding their original expectations. This led to an 80% volumetric growth in the Barnett region from Q4 2023 to Q4 2024. The company connected 23 wells in the fourth quarter. This level of activity was supported by an active customer base, with over 100 drilled but uncompleted wells (DUCs) behind the company's systems as of year-end 2024.
Looking ahead to 2025, SMC provided full-year guidance, expecting adjusted EBITDA in the range of $245 million to $280 million. The company anticipates connecting 125 to 185 new wells to its systems, with roughly 75% of these wells coming from crude oil-oriented areas and the remaining 25% from natural gas-focused regions.
SMC's capital expenditure guidance for 2025 ranges from $65 million to $75 million, including $15 million to $20 million in maintenance capital. The company noted that approximately $20 million of the 2025 capital budget is considered one-time or non-recurring, with ongoing capital requirements expected to be in the $45 million to $55 million range to support the anticipated level of EBITDA generation.
Based on the midpoint of their 2025 guidance, SMC expects to generate over $100 million in free cash flow, which they plan to use to continue deleveraging their balance sheet towards their target leverage ratio of 3.5x.
Segment Overview
SMC's operations are divided into four reportable segments:
1. Rockies Segment: This segment includes midstream assets in the Williston Basin and DJ Basin, primarily focused on crude oil and produced water gathering services. Key customers include Chord Energy Corporation, Kraken Resources, and Zavanna LLC. In 2024, the segment had average daily throughput of 128 MMcfd for natural gas and 72 Mbbld for liquids. Segment adjusted EBITDA was $93.83 million, a 7% increase from the previous year.
2. Permian Segment: This segment includes SMC's 70% equity investment in the Double E Pipeline, a 135-mile, 1.5 Bcfd FERC-regulated interstate natural gas transmission pipeline. In 2024, the segment had an average daily throughput of 573 MMcfd and segment adjusted EBITDA of $31.23 million, a 29% increase from the previous year.
3. Piceance Segment: This segment includes the Grand River gathering system in Garfield County, Colorado. Key customers include QB Energy and Terra Energy Partners. In 2024, the segment had average daily throughput of 291 MMcfd and segment adjusted EBITDA of $52.70 million, a 12% decrease from the previous year.
4. Mid-Con Segment: This segment includes the DFW Midstream system in Tarrant County, Texas, and the recently acquired Tall Oak system in the Arkoma Basin of Oklahoma. A key customer is TotalEnergies Gas & Power North America. In 2024, following the Tall Oak acquisition, the segment had average daily throughput of 241 MMcfd and segment adjusted EBITDA of $30.64 million, a 17% increase from the previous year.
Risks and Challenges
As with any midstream energy company, SMC faces a variety of risks and challenges that could impact its future performance. These include, but are not limited to:
1. Commodity price fluctuations: A significant portion of SMC's revenues are directly or indirectly tied to the prices of natural gas, NGLs, and crude oil. Prolonged weakness in these commodity prices could reduce throughput on the company's systems and materially affect its financial results.
2. Customer concentration and credit risk: SMC depends on a relatively small number of customers for a significant portion of its revenues. The loss of, or material nonpayment or nonperformance by, these customers could have a material adverse effect on the company's financial and operating results.
3. Regulatory and environmental risks: SMC's operations are subject to extensive federal, state, and local laws and regulations related to environmental protection, pipeline safety, and other matters. Changes in these regulations or the company's ability to comply with them could impact its operations and financial performance.
4. Competition and contract renewal risk: The midstream industry is highly competitive, and SMC may not be able to renew or replace expiring contracts at favorable rates or on a long-term basis, which could negatively affect its revenues and cash flows.
5. Integration and acquisition risks: The successful integration of acquired assets, such as the recent Tall Oak Midstream III acquisition, is critical to SMC's growth strategy. Failure to effectively integrate these assets could impact the company's financial and operational performance.
Industry Trends and Legal Matters
The midstream energy industry has seen moderate growth in recent years, with a compound annual growth rate (CAGR) of natural gas production in the U.S. of approximately 2-3% over the past 5 years. This trend has supported the ongoing demand for midstream services and infrastructure.
In terms of legal matters, SMC settled a case that was previously under investigation by federal and state regulatory agencies regarding a pipeline rupture and release of produced water by one of its subsidiaries in 2015. This settlement resulted in losses amounting to $36.3 million.
Conclusion
Summit Midstream Corporation has navigated a transformative period, emerging as a value-driven midstream energy infrastructure company with a strengthened balance sheet, diversified asset portfolio, and strategic growth initiatives. By executing a series of strategic transactions, SMC has positioned itself for continued success in the evolving midstream landscape. While the company faces various risks inherent to the industry, its experienced management team, operational excellence, and disciplined capital allocation approach provide a solid foundation for long-term value creation. With a clear focus on deleveraging and generating strong free cash flow, SMC is well-positioned to capitalize on opportunities in the dynamic midstream sector.