Summit Midstream 2026 Q3 Earnings Call

Good day, and thank you for standing by. Welcome to the third quarter 2026 Summit Midstream Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randall Burton. Please go ahead. Thanks, operator, and good morning, everyone.

If you do not already have a copy of our earnings release, please visit our website at summitmidstream.com, where you will find it on the homepage, Events and Presentation section, or Quarterly Results section. With me today to discuss our third quarter of 2026 financial and operating results is Heath Deneke, our President, Chief Executive Officer, and Chairman, Bill Mault, our Chief Financial Officer, along with other members of our senior management team. Before we start, I would like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses, and capital expenditures. They may also include statements concerning anticipated cash flow, liquidity, business strategy, and other plans and objectives for future operations.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see SMC's annual report on Form 10-K for the fiscal year ended December 31, 2025, which the company filed with the SEC on March 16, 2026, as well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results. Please also note that on this call, we use the terms EBITDA, adjusted EBITDA, distributable cash flow, and free cash flow. These are non-GAAP financial measures, and we have provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release. With that, I will turn the call over to Heath.

All right, great. Thanks, Randall. Summit reported strong third quarter results with adjusted EBITDA of $70.7 million, which is a 16% increase relative to the second quarter and one of the strongest quarters in Summit's history. The increase was driven primarily by our Rockies segment, where the activity we talked about on our last call really showed up this quarter. We connected 51 wells across the Williston and DJ, and liquids volumes increased 40% quarter-over-quarter. When you step back and look at where we started the year, the supportive commodity price environment has led our customers to accelerate development, and the new wells and volume growth that have come with it have added roughly $16.5 million of quarterly adjusted EBITDA since the first quarter, or approximately 30% growth in just two quarters. That really highlights the momentum embedded in this business.

With seven rigs currently running behind our system and our DUC inventory growing to approximately 140, we have a lot of visibility into the volumes as we head into 2027. With that kind of momentum, I'd like to touch on guidance before we get into what we're seeing in each basin. With three quarters in the books now and strong activity heading into year-end, we are raising our full-year 2026 adjusted EBITDA guidance to a range of $250 million-$260 million, which is up from $235 million-$255 million previously. We continue to expect full-year capital expenditures, including Double E, of roughly $100 million-$120 million, which is consistent with the update we provided last quarter. We're also expecting to end the year with a total net leverage ratio of approximately 3.6 times, which is paving the way for us to consider turning on a common dividend next year.

As we look into 2027, it's already shaping up to be another strong year. Based on the current rig activity and DUC inventory behind our systems, we expect to connect 200 to 250 wells next year, which we think will drive meaningful year-over-year volume and EBITDA growth. Looking ahead, we are beginning to see a real step change in the company's organic growth outlook over the next two to three years, which is driven primarily by our Rockies and Permian segments. In the Rockies, the higher crude price environment has accelerated development plans across both the Williston and the DJ, and our producers are submitting plans that show a substantial pickup in activity levels and volumes well into 2028 and beyond.

In the Williston, we've been talking about the migration of drilling activity from McKenzie County, which is largely drilled out, into Williams and Divide County, which is exactly what we are seeing happen. We're looking at a substantial pickup of activity from Chord and Kraken behind our systems in Williams County in both 2027 and 2028, and we're also seeing an activity pickup on the new contracts we announced earlier in the year that span a 240,000 new area dedication up in Divide County. In the DJ, based on the latest development plans from Bison and Peoria, we're expecting to fill up our existing processing plants by the end of 2027, and we're now evaluating a brownfield expansion of our Jackson Lake processing complex, which will help us enable future growth into 2028 for both new and existing customers.

We'll keep you apprised on the status of the Jackson Lake expansion as we continue to work towards FID in the coming months. In the aggregate, if these plans and activity levels hold, we're looking at as high as a 30% CAGR in Rockies segment adjusted EBITDA over the next two years. In the Permian, associated gas production continues to grow at a rapid pace, and while a lot of new pipeline egress projects out of the basin, like Desert Southwest, Solitude, and Permian Link, they appear adequate through at least 2030 to handle the ramp-up in Permian supply. However, the in-basin pipeline infrastructure necessary to transport that gas from processing plant tailgates to those egress pipelines are constrained, and that has really increased the reliance on Double E and is driving the need to further expand our infrastructure.

As previously announced, we are proceeding with our mainline compression expansion, which we expect to be online by the end of 2028. This expansion increases our mainline and delivery capacity to the Waha by 50%, and it also allows for more bidirectional capacity that can access additional markets and outlets on the northern end of the pipeline. We are still expecting to sell out our remaining forward haul capacity to Waha in the coming months, and we will be launching a new open season soon to solicit interest in the bidirectional capability. With the momentum and success we are having securing new long-term take-or-pay agreements, we fully expect to see adjusted EBITDA in the Permian segment grow from approximately $40 million in 2026 to over $100 million in 2029. And we are not planning on stopping there.

We are in early planning stages to develop a phase two mainline compression expansion that could add an additional 1 BCF a day plus of additional bidirectional capacity in the 2030 timeframe as well. Look, lots of momentum in our Permian gas transmission segment as well, and we look forward to continue to update you as we make progress. Shifting to the Mid-Con, volumes were up this quarter on a full quarter of contribution from the wells connected in the second quarter. We are also seeing producers in the Anadarko begin to focus on an emerging dry gas window near our system. As we mentioned earlier this year, the first gas pad we connected in that area came on at roughly 50 million a day across just three wells. Those are some of the biggest wells we have seen on the system, and they have clearly caught the attention of producers in the area.

We are working closely with our customers on what development in that window could look like, and while it is still early, we think it could become a meaningful growth opportunity for the segment over time. That, combined with steady activity in the Barnett, we see a solid outlook for the Mid-Con in the years ahead. Look, taken together, the strong outlook in the Rockies and Permian segments, along with the steady outlook in the Mid-Con, could drive a mid-to-high teens compound annual growth rate in adjusted EBITDA over the next several years. What is most exciting is that this growth is 100% organic, and it is mostly driven by customers developing acreage that is already dedicated to our systems and already under long-term contracts on Double E. And that gives us a lot of visibility and confidence in the outlook of the business ahead.

We look forward to providing more detail on our 2027 financial outlook when we provide guidance early next year, and we will keep you posted on major milestones along the way. With that, I will turn the call over to Bill to walk through the financials.

Thanks, Heath, and good morning, everyone. Summit reported third quarter 2026 adjusted EBITDA of $70.7 million, distributable cash flow of $32.6 million, and free cash flow of $5.2 million. Total capital expenditures were $21.2 million for the quarter, inclusive of $4.7 million of maintenance CapEx, with the majority of growth capital directed toward pad connections in the Rockies and Mid-Con segments. We also contributed $10.9 million to Double E during the quarter to fund new laterals in the mainline compression expansion project. With respect to Summit's balance sheet, we ended the quarter with $12.5 million of unrestricted cash and $80 million drawn on our revolving credit facility, with approximately $417 million of available borrowing capacity after accounting for $2.7 million of undrawn letters of credit. Total net leverage at the end of the quarter was approximately 3.9 times, and we expect to end the year at approximately 3.6 times.

The Summit Permian Transmission term loan had a balance of $360 million at quarter end and remains non-recourse to Summit, and Summit Midstream Permian had $9.2 million of cash on hand at quarter end. Now on to the segments. The Rockies segment generated adjusted EBITDA of $40 million, an increase of $9.6 million relative to the second quarter of 2026, driven by a 39.7% increase in liquids volume throughput. Liquids volumes averaged 95,000 barrels a day, and natural gas volumes averaged 168 million cubic feet per day during the quarter. We connected 51 wells during the quarter, including 32 in the Williston Basin and 19 in the DJ Basin, and in the Williston, nine wells which we provide both crude oil and produced water gathering services. Just as a reminder, the water-to-crude ratio in this area of the Williston is approximately three barrels to one.