Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the DT Midstream Q1 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Todd Lohrmann, Director of Investor Relations, you may begin.
Good morning, and welcome, everyone. Before we get started, I would like to remind you to read the safe harbor statement on page two of the presentation, including the reference to forward-looking statements. Our presentation also includes references to non-GAAP financial measures. Please refer to the reconciliations to GAAP contained in the appendix. Joining me this morning are David Slater, President and CEO, and Jeff Jewell, Executive Vice President and CFO. I'll now turn it over to David to start the call.
Thank you, Todd, and good morning, everyone, and thanks for joining. On today's call, I'll start by highlighting some of our key results this quarter, then discuss the constructive fundamentals that are playing out around our assets and our execution on previously announced projects. I'll pass it over to Jeff to review our Q1 financial results, and then I will close with some remarks on our future opportunities. With that, we had a strong Q1 performance that puts us firmly on track for our plan for the year, and we are highly confident in our ability to achieve our 2022 guidance. Our commercial team was very busy advancing our investment plans.
On our Appalachia Gathering System, we reached agreements with two existing customers that will result in an attractive incremental expansion with approximately 200 million a day of added system capacity, a significant term extension, and an expansion of dedicated acreage. On our NEXUS pipeline, we executed a five-year contract for 100 million a day of capacity with an investment-grade shipper at attractive rates. We are also advancing our ESG-focused initiatives, which are a priority for us. As Jeff will cover in more detail, we successfully locked in the interest rates and extended the term on a portion of our variable rate debt. It's been a very busy and productive quarter moving the company forward. Turning to the fundamentals, the environment for natural gas continues to remain strong. The geopolitical situation with the Russia-Ukraine war has highlighted the importance of energy security both domestically and abroad.
The role for U.S. natural gas in the form of LNG will be critical in supporting Europe and ending Europe's dependency on Russian energy supplies. U.S. LNG can also displace coal globally as a fuel source for electric generation, which supports worldwide decarbonization efforts in a timely and cost-efficient way. DTM's assets are very well-positioned to enable U.S. LNG export growth both out of Appalachia and the Haynesville. We currently have approximately 2 Bcf a day of access to LNG export markets, which our shippers have under long-term contracts. Our LEAP pipeline flows gas to three export terminals on the Gulf Coast, and our Stonewall pipeline provides a critical pathway for Appalachian gas to the Cove Point Terminal on the East Coast and to the pipelines that serve the Gulf Coast LNG corridor.
The strong gas price environment is also benefiting many of our customers, and we expect it to continue to improve their cash flows and credit metrics, making these customers stronger, which will provide additional flexibility to grow production over time. We are seeing a response to the strong fundamentals in both of the basins where we operate. In the Haynesville, production is continuing at record levels and strong rig activity points to robust future growth. Projections are for 7-8 billion cubic feet a day of growth in both Haynesville supply and Louisiana Gulf Coast LNG demand between now and 2030. This is translating to very strong demand for pipeline capacity from the Haynesville to the Gulf Coast. The price environment is also sending a strong signal to drill in Appalachia.
With takeaway capacity constraints in the basin, there is a high demand for any existing capacity or easily expanded capacity to get gas further downstream towards markets. I will touch a little bit more on the specific opportunities created by the fundamental environment later on the call. Before I pass it over to Jeff, I wanted to give an update on our previously announced expansion projects, which will begin entering service starting the Q2 of this year. It's further detailed on slide 14 of the presentation. Our team is highly focused on executing these projects, and all major projects remain on track. We have ordered critical long-lead equipment and continue to proactively manage supply chain situations. I'll now pass it over to Jeff, to walk you through our quarterly financials and outlook.
Thanks, David. Good morning, everyone. Our Q1 results put us firmly on track for our full year 2022 plan. In the Q1 , we delivered overall adjusted EBITDA of $191 million. This strong Q1 performance, combined with balance of year growth from our new projects and planned growth in our existing businesses, makes us highly confident that we will achieve our full year 2022 adjusted EBITDA guidance. We are also well-positioned to achieve our early outlook for 2023. Regarding our quarterly segment level performance, we had largely consistent results for both our pipeline and gathering segments compared to the Q4 of 2021. Pipeline segment results include higher contribution from our pipeline joint ventures, offset by lower short-term contracted volumes on Stonewall. Our gathering segment results for the Q1 included the impact of planned maintenance on our Haynesville system.
Operationally, our total gathering volumes across both the Haynesville and Appalachia averaged 2.9 billion cubic feet per day, and included the continuing benefit of the new customer volumes on our Haynesville system, which were pulled forward into 2021. Now turning to our balance sheet. We are always evaluating ways to improve on an already strong position, which is why we recently took action with a bond issuance in the investment-grade markets, which effectively converted 60% of our seven-year term loan to a 10-year senior note. The execution of this leverage neutral transaction fixes the interest rate on a large portion of our floating debt and extends our weighted average debt maturity out to eight years. I'll now turn it back over to David for more details on our growth opportunities and recent advancements in our ESG agenda.
Thanks, Jeff. Less than a year since our spin-off from DTE, we have committed over 50% of our $1.2 billion-$1.7 billion five-year investment plan to organic projects at attractive returns. In Haynesville, the strong fundamental environment continues to provide tailwinds in our pursuit of a phase II Haynesville system expansion, which remains a top priority for our commercial team. We believe that new projects are needed to facilitate the delivery of Haynesville gas to the LNG export terminals and expansions of existing systems such as LEAP, is quicker and a lower-risk solution than a greenfield build. In Appalachia, we continue to have discussions on the NEXUS open season, and we'll keep pursuing favorable recontracting opportunities at improved rates.
In our emerging third business platform, we continue our disciplined work to advance our CCS project in the Louisiana area towards an EPA Class VI permit application filing. We will continue to prioritize our ESG leadership by offering our customers low carbon services. For example, we have joined with Cheniere to monitor emissions at our Haynesville operations to support the ability to carbon tag future LNG cargoes. We're also putting the finishing touches on our inaugural sustainability report, which we plan to publish later this month. In summary, I feel really good about the start to the year, and I am confident that we are on track to deliver on our full year 2022 guidance and achieve our 2023 early outlook.
The very strong fundamentals surrounding our assets has me very optimistic about the durability of our portfolio, which supports our future growth opportunities and the company's performance over the long term. We can now open up the line for questions.
As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our first question today is from Jeremy Tonet with JP Morgan. Your line is open.
Hi. Good morning.
Morning, Jeremy.
With the new NEXUS contract there, I was just wondering if you could provide a bit more, any details on the rates there or how the environment looks, you know, as you're signing, margin rates would look strong given the scarcity of takeaway coming out of Appalachia, but any color you could provide there would be helpful. Thanks.
Yeah, absolutely, Jeremy. You're correct. We're seeing more interest in any available capacity that's in the network that's uncontracted today. Given the, you know, the strong price signals for Appalachia producers to drill, you know, they're really just. They don't want to drill and flood the basin. They want to drill and go to a market. That's been really positive. The contract that we announced is, you know, with a strong investment-grade driller in Appalachia. All that information will become public, Jeremy, for you guys to look at, on the NEXUS website, through the FERC process. Yes, we're seeing the, you know, strong rates, I'll just say it that way. You know, rate escalation, as we have been talking over the last 12 months, that continues. We're really happy about that.
We look to do more of that in conjunction with working through the details of, you know, the NEXUS open season. We're really looking at how can we expand the export capacity out of the basin incrementally with an easy, low risk, low cost expansion opportunity.
Got it. Thanks for that. Turning, I guess, to the Haynesville. Just wondering, you know, there seems to be competition down there for new pipe. Just curious. For the LEAP system, given its footprint, given the expansion capabilities, just wondering where the system could grow to over five years from now, you think, given the, you know, profile for Haynesville production growth as it stands now?
Yeah, that's a great question, Jeremy. Certainly, as I said in our opening remarks, one of our top priorities with the commercial team. If you really just step back, you know, you can see that there's a really strong demand like that 78 Bcf is real over the next 7-8 years. When we look at the assets, our ability to expand, we can expand quickly, incrementally with compression, so it's low risk and quick to bring it online for our customers so we can ramp with the production. When we get beyond that 2 Bcf a day with compression, we can go up to 3 Bcf a day as we begin to loop the system. Again, doing it all inside our right of way inside our footprint.
Again, it can be done incrementally, as the demand is there and the producers are ready to make those commitments. It's, you know, we're really excited about it, and, you know, stay tuned as we can sort of continue to progress that, you know, beyond what we announced on the year-end call. You know, we're in flight now, expanding the system for 300 million a day, and again, look to keep adding increments, as we progress here with customers.
Got it. That's helpful. Just one last one, if I could, as it relates to carbon capture development within Louisiana. Any other thoughts you could provide, I guess, on timeline when this could become more real and just really, you know, Class VI wells, Louisiana seeking, you know, primacy there. Thoughts on timeline or anything else on this topic that you could provide more color on would be helpful.
Sure. You know, the way I'll describe it, Jeremy, we're following our very disciplined development plan. You know, the next major milestone for us will be that Class VI application. I think as we've talked before, Louisiana is trying to get primacy. Our plan is we will file regardless of whether Louisiana has primacy or not, just because these applications take some time to go through the regulatory process, anywhere from two to three years. Getting this filed this year is a high priority for us. We want to file it with high-quality information. You know, it's a very rigorous process.
Again, that's part of that disciplined development that the team is adhering to, where we're just methodically doing all the homework and the due diligence in the right way so that when we do file that application, it's a high-quality application, that the regulators know what's going to be in it before we file it, and it can progress through the process in a smooth fashion. That's how we're thinking about it. You know, it's somewhat new. A lot of other companies are sort of in the same position we're in, and it's also, you know, somewhat of, as you're acquiring the rights that you need to do this, again, that disciplined approach.
We just want to be very cognizant of getting all the pieces together before we put that application out there in the public domain so that we have no issues along the way.
Got it. That's helpful. I'll leave it there. Thanks.
No problem. Thanks, Jeremy.
The next question is from Michael Blum with Wells Fargo. Your line is open.
Thanks. Good morning, everyone.
Morning, Michael.
Wanted to go back to a comment, just some comments you made about supply chain and cost issues as it relate to the growth projects. Just want to make sure I understand. Are you saying that kind of in spite of those issues and inflation that we're seeing, the cost for your projects really hasn't changed materially?
When we FID the projects, we factored in what I'll call the supply chain realities that we were seeing in the market. Really what I'm saying here, Michael, is just confirming that, you know, those projects remain on track, on budget. We knew there was going to be some pressure, so that was factored into the capital and the commercial structure when we made the investment decision. We're just being really mindful of that because of all the pressure that we all see in supply chain to keep our eyes on that so that we don't have any project changes along the way here.
Got it. That makes sense. Thank you. Also just wanted to ask about the gathering segment. Year-over-year, you know, the volumes are up pretty substantially, I think like 18%, but your EBITDA is up only modestly year-over-year. I'm wondering if you could just walk us through that dynamic and also whether we'll eventually see those higher volumes translate to cash flow. Thanks.
Hey, Michael, it's Jeff Jewell. Yeah, one thing when you think about year-over-year and you're referring to Q1 is remember there's public company costs, that's playing through. That's why in the decks, you know, we're sort of guiding people, you know, the Q4 over the Q1 . That's the dynamic you're seeing. But of course, when you look at our 2022 guidance, and then even our 2023 guidance, you can see the planned growth, both the new projects and within the business, that growth, you know, is planned through both of those. David, do you want to add on to that? Yeah.
Yeah, that's really the answer there, is that you're comparing a Q1 inside DTE, where we didn't have the standalone incremental public company costs. So that's really the delta there that you're looking at. Then maybe I'm just going to pull it back. I'm going to pull back to the higher level. You know, on the year-end call, when we announced the Haynesville system expansion, and I'll just talk on the gathering side, just to put it in perspective, we announced a 25% increase in our gathering system in that expansion. It was 500 million a day. So just to put into perspective, is our Haynesville gathering system growing with production? I think the answer is clear that it is. We're going to grow that system by about 25% with that announced expansion.
Perfect. Thank you so much.
You're welcome.
The next question is from John Mackay with Goldman Sachs. Your line is open.
Hey, everyone. Good morning. Thanks for the time. Maybe just wanted to follow up on kind of some of the Haynesville stuff, and I'm sorry if you guys said this and I missed it, but could you just talk a little bit more about just getting through the maintenance and kind of maybe where we are sitting right now? I know last quarter you also talked about some, you know, some of the shorter-term contracts that are pulled into Q4 . Just really trying to think about what, you know, the Q2 plus trajectory could look like there. Thanks.
Yeah. John, it's David. The way I think about it at a high level, quarter-over-quarter, we have relatively flat volumes on the Haynesville system. We have the Haynesville system running at a very high utilization right now. Yes, I think we noted that we had some planned maintenance that showed up in March in the Q1 , and that was contemplated in our guidance. That was what we had in our plan. We have significant expansions that are underway, and those are detailed out, I believe, on slide 14 in the deck that sort of walks the growth that will occur Q2 , Q3 , Q4 this year when we ramp that up.
You know, we've got a significant expansion that we're in flight on right now that we'll be building out on. And again, it's fully contracted with an anchor shipper. Just to remind everybody that, you know, we had a really strong Q4 last year. We pulled forward into the Q4. A number of new customers that came on the system that we didn't expect were going to come on until kind of the end of the year. That's why you see that real strong growth Q3 to Q4. And then, basically, they all came on in Q4. We're running relatively flat as we work through the expansions now in 2022, and have the system running at a very high utilization right now.
Okay. Thanks. That makes sense. Maybe just to confirm i f the Haynesville gathering expansion is more of a Q3 in service, Q2 is going to be relatively flatter on the volume side, is that fair?
Yeah. I'm just glancing at that slide that I just pointed to, just to remind myself on the quarters here, but yeah. Most of the Haynesville gathering shows up in Q3 of 2022. Now we're going to be seeing other expansions that we previously announced showing up in Q2, but not on the Haynesville system.
Okay. That's fair. Thanks for that. Maybe just as a one more. We've seen M&A on the G&P side, kind of more bolt-on G&P M&A pick up a little bit. Just wondering, you know, if you guys have looked at any of that, what your appetite might be, and how you're kind of thinking about that overall. Thanks.
Sure. Yeah, so we're aware of all the assets that are in the market and that have been in the market and are currently in the market. Our approach right now on that is again, just taking a very disciplined look at things, and they have to, you know, they would have to strategically fit and they obviously have to have value creation for us. So that's kind of our prerogative on that. You know, we're flush with greenfield opportunities right now, very focused on executing all of the announced projects and pursuing new greenfield projects. I think as you know, those are very accretive and very good investments for the investors with strong returns when you're doing it on top of your existing assets.
You know, we're always trying to be good stewards of the capital that we have here and making sure that we're getting it to the place that provides the highest shareholder value at the end of the day. That's how we think about M&A right now in the current environment that we're in. You know, we're looking and we're aware of it and open to it, but it has to deliver at the end of the day the value that we expect.
That's great. Thanks for the time.
Yep.
The next question is from Robert Mosca with Mizuho Securities. Your line is open.
Hi, guys. Thanks for taking my question. Just wondering if there's any more juice to squeeze on some of these Northeast gathering expansions, just given the regional pipeline constraints. Could you remind us how AGS is situated so that it can get incremental volume out of the basin? Could you do something similar on Susquehanna? Thanks.
Yeah. Thanks for the question, Rob. So I mean, we're really pleased with what we announced on AGS. Again, just to put it into context, between what we announced today and what we announced, I believe, late last year, we're growing that system 35% over the next year or two. That is really strong growth in Appalachia. I think you asked exactly the correct question, Rob. Where is that gas going? How can those producers drill that up and get it out? Just to remind everybody, AGS connects directly to Nexus, so it's. Nexus is a freeway out of the basin for AGS. It's directly connected to Nexus. AGS is also directly connected to our Stonewall pipeline, which again, you know, we announced previously a new firm contract on Stonewall.
It's another avenue out of Appalachia that has open capacity available. Between those two exit freeways, the producers on AGS are able to step up their production. We're extremely happy with that. I mean, that is a very great outcome for us and very pleased to work with our key customers there. You know, I think as you know, one of our major customers on Stonewall is Antero. You know, Antero has a long-term firm commitment to Cove Point, and Stonewall is the primary avenue for their gas to get to Cove Point. We're really excited about what's happening on AGS right now.
Got it. That's helpful. I guess turning to financing, just wondering if you have any plans to term out the remaining $400 million on your Term Loan B? Should we take refinancing to mean that $2.7 billion of long-term debt is kind of what you view as a comfortable indebtedness level longer term?
Yeah. Hi, Rob. This is Jeff. You know, good question. What we did when we did that transaction, again, we wanted to make a significant move in converting the floating to the fixed. We've executed on that. But we also wanted to maintain the strategic optionality with that the Term Loan B provides you because, you know, it's got that prepay feature. As David talked about, we've got over 60% of our growth capital committed. Again, as the commercial team continues to firm up our growth capital, then we'll reassess what do we want to do with the rest of that Term Loan B. That sort of provides you a path and sort of a view of what we're thinking there.
From a capital structure perspective, yeah, we're very comfortable with the overall debt levels that we have, because as we've talked about our growth capital aligned with the opportunity we have, that fits inside of our free cash flow. We're able to self-fund all of our growth, therefore we don't need external capital. That's why we're very comfortable with the overall size of our capital structure.
Got it. Thanks, everyone. Have a great day.
Yeah, you too, Rob.
Again, that is star one if you'd like to ask a question. Our next question is from James Carreker with U.S. Capital Advisors. Your line is open.
Hi. Thanks for the question. I was just wondering, with the takeaway constraints out of Appalachia, we've seen a number of Permian pipes announce some compression expansions. Is that, something that you could do for Nexus to kind of increase the takeaway?
Yeah, James, Dave, this is David. Yeah. We had an open season late last year to look at opportunities on NEXUS. That's certainly one opportunity that we're actively pursuing, whether a compression expansion's viable. There's a couple other techniques, I'll say it that way, that we're looking at on NEXUS to enable incremental capacity at very, you know, modest incremental capital and you know like I said earlier, low risk investments that are you know on a relative basis, much easier to do. That's a priority for us. You know, NEXUS is a brand new asset, very well connected to the downstream markets. You know, with this price signal, a lot of these producers are looking for, you know, how can they grow their production.
You know, Appalachia is a world-class resource, long-term drillable resource. A lot of producers are sitting in a lot of undeveloped acreage. They have this wonderful price opportunity in front of them right now. They just need to have confidence they can take those volumes to durable long-term markets. It's an absolute priority for us to create more takeaway capacity out of the basin. We're working both the NEXUS side and like I alluded to earlier, the Stonewall side. The pathway north into the upper Midwest markets and the pathway south and east towards the East Coast or towards the Gulf Coast to get some of that Appalachia gas down into the LNG corridor. Working both ends, looking for, you know, any optimizations we can do with these assets to eke out more incremental capacity.
Any sense for the magnitude of how much capacity could be added via, I guess, compression or these other techniques, either NEXUS or NEXUS plus Stonewall?
Yeah. Just given the point of the conversations right now on NEXUS, I'm just not in a position to share that publicly right now on NEXUS. I will remind, I'll share publicly the southern piece because I think we've talked about it in the past. Stonewall is a 36-inch pipe that has no compression on it. So there's open runway on Stonewall, and there's easy expansion opportunities on Stonewall, and we can take that comfortably up to 2 Bcf a day, probably a little beyond, under the right operating circumstances. Again, I think this is where, you know, we're looking at how do we do rational, low-risk, low-cost expansions to help these producers monetize some of their acreage.
Obviously for Stonewall, we have to work in conjunction with our other pipeline brethren in the industry to get beyond the southern end of Stonewall and further into the load centers.
Thank you. If I could fit one more in, any sense on how much CapEx is associated with this most recent announcement for the expansion of AGS? Any thoughts on what the CapEx could be for any CCS projects down the road?
Yeah. I'll say the AGS expansion is, you know, a very strong return expansion for us. Again, there's a lot of activity going on on AGS right now. Again, just bear with me here. We will provide that information to you. I just can't do it just yet. There are other opportunities we're pursuing on AGS that I don't want that information out in the public domain at this point. That's the AGS situation. On CCS, you know, again, I'm going to refer back to the disciplined development approach that we always like to take.
Again, I think until we are prepared to file that EPA Class VI application, again, we want to just keep some of the details out of the public domain as we navigate through the development cycle here. We're at a very sensitive point in the cycle, and again, as soon as we're comfortable sharing that with you, we will.
Understand. Thank you.
We have no further questions at this time. I'll turn it over to David Slater for any closing remarks.
Well, great. Thank you everybody for joining us today, and we truly appreciate your interest in DTM. I personally look forward to seeing many of you at the EIC Investor Conference later this month, in person and live, and lots of really exciting things happening in the sector and for our company right now, many of which we've touched on today. Very excited about the future opportunities in front of the company. With that, stay safe and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may