Concludes Strategic Alternatives Process; Plans to Seek
Approval from Unitholders to Convert to a C-Corp
HOUSTON, March 22,
2024 /PRNewswire/ -- Summit Midstream Partners, LP
(NYSE: SMLP) ("Summit", "SMLP" or the "Partnership") announced
today the sale of Summit Midstream Utica, LLC, which includes its
approximately 36% interest in Ohio Gathering Company, LLC ("OGC"),
approximately 38% interest in Ohio Condensate Company, LLC ("OCC",
collectively with OGC, "Ohio Gathering") and wholly owned
Utica assets (collectively, "Utica
Position") to a subsidiary of MPLX LP ("MPLX") for $625 million in cash (the "Utica
Divestiture").
This transaction is the culmination of the comprehensive
strategic review process undertaken by the Summit Board of
Directors (the "Board"), in consultation with external advisors,
that was publicly announced on October 3,
2023. As part of this process, the Board considered a wide
range of opportunities to maximize value for unitholders, including
an outright sale of Summit and other divestiture and
partnership-level transactions. The Utica Divestiture and
conclusion of the strategic review were unanimously approved by the
Board. The Board and management team have completed their active
process, but will remain open to all potential value-enhancing
transactions.
In connection with the Company's strategic review, the Board
also evaluated various corporate structures to determine how to
drive the greatest long-term value for unitholders. The Board
believes converting to a C-Corp positions the Company to maximize
value by enhancing trading liquidity, greatly expanding the
universe of potential investors and optimizing the long-term tax
consequences to unitholders. The Board and management plan to seek
approval from Summit unitholders to convert the Partnership to a
C-Corp at a Special Meeting later this year. Summit expects to file
a proxy statement to provide unitholders with additional
information about the rationale and benefits of the C-Corp
conversion in advance of the Special Meeting.
Transaction Highlights
- Delivers significant value and dramatically improves credit
profile and financial flexibility
- Reduces Summit's current net leverage by 1.5x to sub-4.0x,
furthering progress toward achieving 3.5x net leverage target
- Increases liquidity with undrawn $400
million credit facility and more than $325 million of unrestricted cash
- Shifts Summit's portfolio to approximately 55% crude
oil-oriented basins
- Accelerates timing of potential preferred equity and common
equity distributions
- Positions Summit to continue to fund and execute on organic
growth projects including further commercialization of Double E and
potential synergistic bolt-on acquisitions, primarily in its
Rockies segment
- Enables Summit to further reduce cost of capital in elevated
interest rate environment
- Revised pro forma 2024 Adjusted EBITDA guidance of $185 million to $220
million1
Management Commentary
Heath Deneke, President, Chief
Executive Officer, and Chairman, commented, "We are pleased to
announce this compelling transaction with MPLX, which is the result
of a thorough strategic review, and generates substantial value
creation opportunities for our unitholders. MPLX has been a great
joint venture partner and operator of the OGC and OCC assets since
Summit entered the Utica Shale in 2014 and we thank both MPLX and
our valued Summit employees for their hard work and dedication to
the partnership and producer customers in the region.
As we evaluate the strategic and commercial opportunities for
our existing assets, we believe there are several value optimizing
strategies to pursue to further build scale, particularly in our
Permian and Rockies segments. We continue to believe in the
sizeable growth potential of the Delaware Basin and expect to further
commercialize Double E's available pipeline capacity. We are
confident there are additional commercial opportunities, similar to
the recently announced Janus Processing Plant connection, that will
continue to drive incremental free cash flow and the value of the
pipeline. Further, we believe the DJ Basin and Williston Basin remain fragmented with a
sizeable opportunity to pursue value-accretive and synergistic
bolt-on acquisitions and organic growth opportunities. With a more
focused portfolio and improved credit profile following completion
of the transaction, we will be even better positioned to
pursue those opportunities, expanding our footprint and service
offerings in those regions. We also believe the transaction
accelerates our ability to potentially resume preferred and common
equity distributions in the near future as we rebuild scale and
achieve our longer-term net leverage targets."
Utica Position Overview
Summit Utica: The Summit
Utica system is a natural gas gathering system located in
Belmont and Monroe counties in southeastern Ohio and serves producers targeting the
dry-gas reserves of the Utica and
Point Pleasant shale formations.
The Summit Utica system gathers and delivers natural gas, primarily
under long-term, fee-based gathering agreements, which include
acreage dedications.
Ohio Gathering: Ohio Gathering comprises a natural gas
gathering system and condensate stabilization facility located in
the Utica Shale in southeastern Ohio. The gathering system spans the
condensate, liquids-rich and dry-gas windows of the Utica Shale for
multiple producers that are targeting production from the
Utica and Point Pleasant shale formations across
Belmont, Monroe, Guernsey, Harrison and Noble counties in southeastern Ohio. Substantially all gathering services on
the Ohio Gathering system are provided pursuant to long-term,
fee-based gathering agreements.
Advisors
RBC Capital Markets, LLC served as financial advisor for the
Utica Transaction and Locke Lord
L.L.P. served as legal advisor to Summit.
Use of Non-GAAP Financial Measures
SMLP reports financial results in accordance with U.S. generally
accepted accounting principles ("GAAP"). SMLP also presents
Adjusted EBITDA, a non-GAAP financial measure.
Adjusted EBITDA
SMLP defines Adjusted EBITDA as net income or loss, plus
interest expense, income tax expense, depreciation and
amortization, SMLP's proportional Adjusted EBITDA for equity method
investees, adjustments related to MVC shortfall payments,
adjustments related to capital reimbursement activity, unit-based
and noncash compensation, impairments, items of income or loss that
SMLP characterizes as unrepresentative of its ongoing operations
and other noncash expenses or losses, income tax benefit, income
(loss) from equity method investees and other noncash income or
gains. Because Adjusted EBITDA may be defined differently by other
entities in SMLP's industry, SMLP's definition of this non-GAAP
financial measure may not be comparable to similarly titled
measures of other entities, thereby diminishing its utility.
Management uses Adjusted EBITDA in making financial, operating
and planning decisions and in evaluating SMLP's financial
performance. Furthermore, management believes that Adjusted EBITDA
may provide external users of SMLP's financial statements, such as
investors, commercial banks, research analysts and others, with
additional meaningful comparisons between current results and
results of prior periods as they are expected to be reflective of
SMLP's core ongoing business.
Adjusted EBITDA is used as a supplemental financial measure to
assess:
- the ability of SMLP's assets to generate cash sufficient to
make future potential cash distributions and support SMLP's
indebtedness;
- the financial performance of SMLP's assets without regard to
financing methods, capital structure or historical cost basis;
- SMLP's operating performance and return on capital as compared
to those of other entities in the midstream energy sector, without
regard to financing or capital structure;
- the attractiveness of capital projects and acquisitions and the
overall rates of return on alternative investment opportunities;
and
- the financial performance of SMLP's assets without regard to
(i) income or loss from equity method investees, (ii) the impact of
the timing of minimum volume commitments shortfall payments under
SMLP's gathering agreements or (iii) the timing of impairments or
other income or expense items that SMLP characterizes as
unrepresentative of SMLP's ongoing operations.
Adjusted EBITDA has limitations as an analytical tool and
investors should not consider it in isolation or as a substitute
for analysis of SMLP's results as reported under GAAP. For
example:
- certain items excluded from Adjusted EBITDA are significant
components in understanding and assessing an entity's financial
performance, such as an entity's cost of capital and tax
structure;
- Adjusted EBITDA does not reflect SMLP's cash expenditures or
future requirements for capital expenditures or contractual
commitments;
- Adjusted EBITDA does not reflect changes in, or cash
requirements for, SMLP's working capital needs; and
- although depreciation and amortization are noncash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and adjusted EBITDA does not reflect any
cash requirements for such replacements.
SMLP compensates for the limitations of Adjusted EBITDA as an
analytical tool by reviewing the comparable GAAP financial
measures, understanding the differences between the financial
measures and incorporating these data points into SMLP's
decision-making process.
SMLP does not provide the GAAP financial measure of net income
or loss on a forward-looking basis because SMLP is unable to
predict, without unreasonable effort, certain components thereof
including, but not limited to, (i) income or loss from equity
method investees and (ii) asset impairments. These items are
inherently uncertain and depend on various factors, many of which
are beyond SMLP's control. As such, any associated estimate and its
impact on SMLP's GAAP performance could vary materially based on a
variety of acceptable management assumptions.
About Summit Midstream Partners, LP
SMLP is a value-driven limited partnership focused on
developing, owning and operating midstream energy infrastructure
assets that are strategically located in the core producing areas
of unconventional resource basins, primarily shale formations, in
the continental United States.
SMLP provides natural gas, crude oil and produced water gathering,
processing and transportation services pursuant to primarily
long-term, fee-based agreements with customers and counterparties
in five unconventional resource basins: (i) the Appalachian Basin,
which includes the Marcellus shale formation in West Virginia; (ii) the Williston Basin, which includes the Bakken and
Three Forks shale formations in North
Dakota; (iii) the Denver-Julesburg Basin, which includes the
Niobrara and Codell shale
formations in Colorado and
Wyoming; (iv) the Fort Worth Basin, which includes the Barnett
Shale formation in Texas; and (v)
the Piceance Basin, which includes the Mesaverde formation as well
as the Mancos and Niobrara shale formations in Colorado. SMLP has an equity method investment
in Double E Pipeline, LLC, which provides interstate natural gas
transportation service from multiple receipt points in the
Delaware Basin to various delivery
points in and around the Waha Hub in Texas. SMLP is headquartered in Houston, Texas.
Forward Looking Statements
This press release includes certain statements concerning
expectations for the future that are forward-looking within the
meaning of the federal securities laws. Forward-looking statements
include, without limitation, any statement that may project,
indicate or imply future results, events, performance or
achievements and may contain the words "expect," "intend," "plan,"
"anticipate," "estimate," "believe," "will be," "will continue,"
"will likely result," and similar expressions, or future
conditional verbs such as "may," "will," "should," "would," and
"could", including statements about the divestiture, and the
potential C-Corp conversion, uses of proceeds from the divestiture,
the benefits of the divestiture and/or the C-Corp conversion, and
any related opportunities, and the plans and objectives of
management for future operations. In addition, any statement
concerning future financial performance (including future revenues,
earnings or growth rates), ongoing business strategies and possible
actions taken by SMLP or its subsidiaries are also forward-looking
statements. Forward-looking statements also contain known and
unknown risks and uncertainties (many of which are difficult to
predict and beyond management's control) that may cause SMLP's
actual results in future periods to differ materially from
anticipated or projected results. An extensive list of specific
material risks and uncertainties affecting SMLP is contained in its
Annual Report on Form 10-K for the year ended December 31, 2023, which filed with the
Securities and Exchange Commission (the "SEC") on March 15, 2024 (the "Annual Report"), as amended
and updated from time to time. Any forward-looking statements in
this press release are made as of the date of this press release
and SMLP undertakes no obligation to update or revise any
forward-looking statements to reflect new information or
events.
Additional Information and Where to Find It
This communication relates to the proposed corporate
reorganization of the Partnership. This communication may be deemed
to be solicitation material in respect of the proposed C-Corp
conversion. The proposed conversion is expected to be submitted to
the Partnership's unitholders for their consideration. In
connection with the proposed conversion, the newly formed
corporation is expected to file with the SEC a
Form S-4 containing a proxy statement/prospectus (the
"Proxy Statement/Prospectus") to be distributed to the
Partnership's unitholders in connection with the Partnership's
solicitation of proxies for the vote of the Partnership's
unitholders in connection with the proposed conversion and other
matters as described in such Proxy Statement/Prospectus. The Proxy
Statement/Prospectus will also serve as the prospectus relating to
the offer of the securities to be issued to the Partnership's
unitholders in connection with the completion of the proposed
conversion. The Partnership and the newly formed corporation may
file other relevant documents with the SEC regarding the proposed
conversion. The definitive Proxy Statement/Prospectus will be
mailed to the Partnership's unitholders when available. BEFORE
MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE
PROPOSED CONVERSION, INVESTORS AND UNITHOLDERS AND OTHER INTERESTED
PERSONS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT/PROSPECTUS
REGARDING THE PROPOSED CONVERSION (INCLUDING ANY AMENDMENTS OR
SUPPLEMENTS THERETO) AND OTHER RELEVANT MATERIALS CAREFULLY AND IN
THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED CONVERSION.
The Proxy Statement/Prospectus, any amendments or supplements
thereto and other relevant materials, and any other documents filed
by the Partnership or the newly formed corporation with the SEC,
may be obtained once such documents are filed with the SEC free of
charge at the SEC's website at www.sec.gov or by directing a
written request to the Partnership at 910 Louisiana Street, Suite
4200, Houston, Texas 77002.
No Offer or Solicitation
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities, or a solicitation
of any vote or approval, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Participants in the Solicitation
The Partnership, Summit Midstream GP, LLC, the general partner
of the Partnership (the "General Partner"), and certain of the
General Partner's executive officers, directors, other members of
management and employees may, under the rules of the SEC, be deemed
to be "participants" in the solicitation of proxies in connection
with the proposed conversion. Information regarding the General
Partner's directors and executive officers is available in the
Annual Report. To the extent that holdings of the Partnership's
securities have changed from the amounts reported in the Annual
Report, such changes have been or will be reflected on Statements
of Changes in Beneficial Ownership on Form 4 filed with the SEC.
These documents may be obtained free of charge from the sources
indicated above. Information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the Form S-4, the Proxy Statement/Prospectus and other relevant
materials relating to the proposed conversion to be filed with the
SEC when they become available. Unitholders and other investors
should read the Proxy Statement/Prospectus carefully when it
becomes available before making any voting or investment
decisions.
1 Represents pro forma Adjusted EBITDA assuming the
transaction closed on December 31,
2023.
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SOURCE Summit Midstream Partners, LP