Good day, and thank you for standing by. Welcome to Summit Investor Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Randall Burton. Please go ahead.
Thanks, operator, and good morning, everyone. If you don't already have a copy of our press release and investor presentation, please visit our website at www.summitmidstream.com, where you'll find it on the homepage in Events and Presentation section. With me today to discuss our recently announced strategic acquisitions 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'd like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, statements about our timing and benefits of our acquisitions and related financing and our estimates of future volumes, operating expenses, and capital expenditures. It 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 assurances that such expectations will prove to be correct. Please see our 2021 annual report on Form 10-K, which was filed with the SEC on February 28, 2022, 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, and Distributable Cash Flow. These are non-GAAP financial measures. Please refer to our press release, investor presentation, and website for disclosures regarding our non-GAAP financial measures. With that, I'll turn the call over to Heath.
Great. All right. Thank you, Randall. Good morning, everyone. Thanks for joining us to discuss our recently announced bolt-on acquisitions in the DJ Basin. We recently entered into purchase and sale agreements to acquire the Outrigger DJ and Sterling DJ systems for $305 million in cash, which we think represents both the value and credit-accretive transaction multiple of approximately 4x 2023 estimated EBITDA. These transactions represent another exciting step forward in our overall corporate strategy to maximize value through disciplined investing, focusing on strategic, synergistic, and high free cash flowing assets that align with our overall balance sheet and ESG objectives. It's been a very busy 12 months for Summit. It all started with significant support from investors across our capital structure with our re-refinancing in late 2021.
It really enabled us to take advantage of the oil and gas market recovery that we're experiencing now. Since then, we have seen increasing activity in our base business, and we're expecting to be at the high end of our guidance range in 2022 with a line of sight towards continuing double-digit growth into 2023. We completed two non-core asset sales, generating $115 million in proceeds. With this announcement, a reinvestment that establishes a highly synergistic franchise position in the DJ Basin. The transactions have a meaningful impact on Summit's corporate profile. We expect 2023 estimated EBITDA now of over $300 million. We would expect 4.25 leverage in 2023.
If activity levels in 2024 are generally consistent with what we're experiencing and expect for 2023, then we would expect to achieve our 3.5x leverage target in 2024. Look, we're not stopping here. We continue to make great progress on commercializing Double E, and we'll also continue to evaluate other non-core asset sales that will enable us to further streamline the portfolio and accelerate debt repayment. These transactions balance our portfolio to be roughly equally split between crude-oriented basins and natural gas-oriented drilling and continues to diversify not only our overall basin exposure, but also our customer exposure within those basins.
Turning to the transactions, this transaction creates an integrated G&P platform that provides a scalable and reliable, sustainable solution that we think will enhance both the quality and availability of services for our combined customers in the region. It also minimizes our future environmental impact by integrating and fully utilizing existing infrastructure that's in place with the combined systems. On a pro forma basis, Summit's DJ footprint will consist of 735 miles of gas gathering pipelines, over 40,000 horsepower of compression, and 185 million a day of gas processing capacity, with multiple resident gas outlets and NGL delivery points. All of this with, you know, the backstop of having very top-tier diversified customer base in the basin.
The combined system traverses several highly economic areas in the DJ, and is backed by a combination of long-term fixed fee and percent of proceeds contracts, which is underpinned by over 500,000 leased mineral acreage within a 1.7 million acre dedication area. The integrated system will serve customers in the Hereford Ranch, East and West Pony, Greater Wattenberg, and Northeast Wattenberg extension areas of the DJ Basin. We estimate that our customers have over 1,200 remaining locations. We have roughly 675 active permits today and 140 drilled but uncompleted wells. Look, this is a significant amount of inventory with that we think breaks even as low as $35 per barrel of crude.
While not included in the underwriting of the acquisition, we also believe there are significant commercial upside in fully utilizing the what we estimate to be roughly 70 million a day of unutilized capacity between the Hereford and Jackson Lake plants associated with the Sterling asset. We think that just by commercializing what exists today, that could drive another $30+ million of incremental EBITDA in 2024 and beyond. With that, let me turn the call over to Bill. He'll give you a little more detail on expectations for 2023 and how we intend to finance the transaction.
Thanks, Heath, and good morning, everyone. The transaction will be financed with $85 million of fully committed senior secured second lien notes due 2026 and borrowings under our ABL credit facility, which really represents a reinvestment of the $115 million in asset sales and free cash flow generated by Summit in 2022. We over two times oversubscribed on the second lien notes commitments and had support from our bank group to make a technical amendment to the credit facility to enable the financing. We would certainly like to thank all those involved to make this happen. The transactions are expected to close in the fourth quarter, and we estimate that we'll end the year with approximately $325 million drawn on our ABL credit facility.
Given the significant free cash flow generation of the business, which I'll elaborate on shortly, we will quickly get back to our target liquidity threshold of $100 million and continue to drive towards achieving our 3.5x leverage target by year-end 2024. Now I'll get into some of the details, and I'd like to start on page 10, focusing in on the map, which really illustrates just how expansive this system really is and how much leased acreage is dedicated to the combined system. While we believe a significant amount of the activity in 2023 will be focused around the McKenna, Centennial, and Jackson Lake plant areas, the high-pressure trunk lines that extend east to west and north to south position us well as development continues to migrate into the other rural areas of the DJ.
This allows us effectively to consolidate geographically dispersed volumes into various owned processing plants that have roughly $70 million a day of available capacity today. Turning to page 11, this is really what gives us confidence in our outlook for 2023. Verdad and Mallard are both key customers on the system, and they have over 180 wells permitted in the area. In the table, we outline the set of wells that we expect to come online over the next 12-18 months. If you count up the DUCs, wells actively being drilled, and active permits in the table, you'll see that there are nearly 130 wells. Approximately 20 of those wells are expected in the fourth quarter of 2022, leaving approximately 110 wells for 2023.
While we are optimistic that these customers will bring on all these locations, our outlook only assumes 75-95 wells in 2023. In addition, the Outrigger system is currently receiving over 25 million a day of high-pressure offload volumes to the west of its McKenna plant. We think that there are opportunities to expand those offload arrangements to more quickly utilize the 45 million a day of available capacity at our Hereford plant. Now let's focus on the map for a minute. While it's a busy map, which is obviously a very good thing, you can get a sense for just how well we can optimize the gathering, compression, and processing capacity of the systems. There are several pad connections slated for 2023 that we can synergistically connect into certain trunk lines and ultimately get those volumes up to Hereford.
This will enable us to avoid debottlenecking capital given the amount of concentrated development. We estimate that this will result in approximately $10 million of CapEx savings in 2023 alone. In addition, we expect to be in a position to increase the amount of gas the combined system can process by diverting volumes to our underutilized Hereford plant and capture OpEx synergies. We think the combination of commercial and cost synergies will result in $5 -10 million of annual EBITDA synergies in 2023. Let's now jump to page 12 and see how this transpires into free cash flow. Starting in the top left, the system continues to see increasing activity aligned with a strengthening commodity price environment since 2021. That has transpired into meaningful volume growth and a sizable step-up in volumes in the second half of 2022.
This is primarily being driven by long lateral well connections brought online to date, as well as increasing volumes being offloaded to the Outrigger system. It's also worth noting that the associated natural gas type curve is a little unique in this area, given how producers complete their wells. If you look at the well results in the area, you'll notice that gas volumes tend to peak out five to six months after the wells are brought online. This characteristic also supports our expectations for 2023, given that most of the volume growth will be predicated on wells that come online in late 2022 and early 2023.
With over 40 wells either online or coming online in the second half of 2022 and 75-95 wells coming on fairly ratably in 2023, we would expect natural gas volumes to average 120-125 million a day in 2023. We expect this level of activity, along with $70-$80 crude oil prices and $5-$6 natural gas prices, will result in $70-80 million of EBITDA from the combined Outrigger DJ and Sterling DJ businesses. Now, breaking down that EBITDA. Over 90% is associated with gas gathering and processing services, which is Summit's bread and butter. But it's also worth noting that, Outrigger DJ system includes 30 miles of crude oil gathering that sits right on top of our gas gathering system up at Hereford.
We think this new dual service offering will be very beneficial once Civitas works its way up to Hereford in the next few years. Further, Sterling has a freshwater frack business that is fairly small, but provides very good line of sight into completion timing for upcoming well connections. The Sterling system brings a combination of fixed fee and percentage of proceeds contracts, while the Outrigger DJ system is a 100% fixed fee. On a Summit consolidated basis pro forma for the transaction, we expect we will be approximately 90% fixed fee versus our most recently reported 95% fixed fee. From a CapEx perspective, we think we'll spend $10- 15 million in CapEx next year, on these assets, given there will be some projects to fully integrate the gathering systems and catch up on a few maintenance projects.
After 2023, we expect normal course CapEx of less than $10 million per year, primarily consisting of pad connection CapEx that is aligned with well connection activity. This brings me to my last point, which is the amount of unlevered free cash flow that we expect these businesses will generate. With $70 -80 million of EBITDA and $10 -15 million of CapEx, we expect over $60 million of unlevered free cash flow in 2023, which aligns very well with the free cash flow profile of our other assets in the portfolio and will support our overall balance sheet objectives. With that, I'll turn the call back over to Heath for closing remarks.
Great. All right. Thank you, Bill. Look, we're very excited with the prospects of closing both transactions during fourth quarter. We believe that these transactions will create tremendous equity value for our unit holders and enhances our overall credit metrics and in our ability to delever the balance sheet over the next several years as we look ahead to refinancing our 2025 notes. We look forward to integrating these assets into the portfolio and continuing to execute on our strategy to streamline and upgrade our asset portfolio, maximize free cash flow, and reach our target leverage of sub 3.5x by 2024. With that, operator, I'd like to open up the call for questions.
As a reminder, to ask a question, you'll need to press star one one on your telephone. Please stand by. We'll compile the Q&A roster. Once again, that is star one one to ask a question. One moment for questions. Our first question comes from Gregg Brody from Bank of America. Your line is now open.
Good morning, guys, and congrats on the transaction.
Thank you. Thanks.
Just a few here for you. Just on the financing. You mentioned the second lien is committed. Are there any thoughts about raising additional capital, or are you comfortable with where you are right now?
Yeah. I think we're comfortable where we are right now. You know, the financing is obviously we're gonna redeploy the $115 million of divestiture proceeds and the $85 million tack-on, and then the rest will just come through availability under our existing credit facility. I mean, that being said, as we pointed to, you know, we're gonna continue to be opportunistic and potentially look to further, you know, potentially streamline our portfolio. If we can find another, you know, value accretive divestiture that can, you know, open up additional liquidity, then we'll certainly be inclined to take a look. I feel like we're in pretty good shape with the financing as we have it sort of right now.
Yeah. Greg, I'd just point to, right, if you think about it, similar to last year, right? I mean, our peak borrowing under ABL will really occur here as we close the transaction. Then, you know, hopefully 2022 was a very good example of just how, you know, the tools we have in the toolbox, not only from base business, free cash flow generation and debt pay down, but also to Heath's point, being able to kind of peel off a couple non-core asset sales. You know, as a reminder, we started post refi at about $325 million drawn on the ABL back in November. Here we sit today at about $85 million drawn.
I think there's a lot of tools to accelerate that delevering, and ABL pay down, here in the coming months.
Got it. Maybe just shifting to the acquisition here. The two companies you mentioned, Mallard and Verdad, I'm not as familiar with them. Can you give us a little sense of how you got comfortable with their credit quality and their pace of growth?
This is Bill Mault, Greg Brody. They're both sponsor-backed E&P businesses, both focused in the DJ Basin. If you reference page 12, you can kind of see the WellConnect activity in the top left. You know, I kind of view these guys as doing, call it 25 to 30-ish wells per year. When you layer that on top of the additional WellConnect activity from other customers behind the system, you know, we get comfortable with the development outlook. I tell you from a balance sheet perspective, while they're private companies, we do generally have a sense that they're very well capitalized. This commodity price environment has certainly accelerated that balance sheet strength here over the past 18 months for them.
Yeah. I think in both cases, I mean, you look at their, you know, their free cash flow profile, the, you know, the D&C budget necessary to support that level of drilling, it's all within their cash flow. Not, you know, they're not having to go out and, you know, take on additional sponsor capital or raise debt to execute on their development plans.
Got it. One more for you. If I look at the previous asset sales and then this transaction, the timing of them, it seems like maybe you were preparing for this. Is this something that you had on your radar for a while, and you were working towards monetizing some non-core assets in order to buy this? If that is true, are there other assets out there like that you have on your radar?
Yeah. I'd say yes and yes. You know, we realize that, look, we're a, you know, relatively small company. We operate in seven different basins. You know, it's been a strategy of ours to look for opportunities to kind of prune that portfolio, where we can, you know, transact in a value-accretive basis. If you look at the last two deals on an aggregate basis, you know, we generated more than 15 times cash flow, when we sold those two assets, in the sales price. Definitely, you know, accretive to the balance sheet, also created enough liquidity for us to reinvest that in a basin that we're really excited about and where we have some very meaningful synergies that we think we can kind of capture within our existing operations.
That is the playbook. You know, I do think that we have, you know, some additional assets that we'd probably put out there as, you know, at the right price we'd be willing to part with and, you know, to kind of accelerate some of our de-levering, and we'll continue to look opportunistically for good value-oriented buys. I will say, you know, with these two transactions, you know, I think our focus is going to be on accelerating de-levering, getting these things integrated. There's a lot of free cash flow that's coming, you know, off of these assets, and that's gonna be our focal point here as we look into 2023. Just kind of harvesting, you know, the free cash flow that these two deals, plus our base business, set us up for.
Greg, if you kind of step back and think about the assets we sold, right? The Lane G&P asset, and then our Bison natural gas asset up in North Dakota, both those assets, you know, our thesis around those was that, you know, it's gonna be tough to commercialize, right, and build a franchise position behind those assets. When you look at what we've done here and redeployed those proceeds into what we think is a very sizable, scalable, and reliable system that I think producers will be excited to commit to longer term, it really does provide a little bit of insight into how we're thinking about the portfolio and repositioning in a way that we can drive and maximize value for all our stakeholders.
Great. You know, one more, if you don't mind. Just you mentioned the synergies here, $5 -10 million, and it does sound like you were being conservative on your volume growth. The $70 -80 million number that you provide, does that include synergies?
It does.
Okay.
What it doesn't include is, look, what really kind of drove the logic behind this transaction was the availability of our underutilized Hereford, you know, processing assets. Between that and a plant that's largely idle behind the Sterling system, we'll have over 70 million a day of available processing. We didn't count utilizing that processing. What I will tell you is that processing capacity really wasn't available for this particular market area where we're seeing the growth. You know, we do think that that plant capacity has a good chance of filling up over the next couple of years, which could add north of $30 million of cash flow to the business. That's really not included.
I think the biggest synergy here is by having the three systems, being able to kind of shuttle gas around the various processing assets. You know, when we look out over the next, you know, five plus years, we don't think we'll have to add another processing expansion, right? We see a lot of free cash flow growth here, a lot of room to drive production up without having to come out of pocket for a lot of follow-on capital.
Great. I appreciate the time, guys. Congrats again.
Thank you so much.
Thank you. I am showing no further questions. I would now like to turn the call back over to management for closing remarks.
Yeah, you bet. Well, thanks a lot, everyone, for joining the call. As you can tell, we're very excited about this. We look forward to getting these assets integrated and continuing to march forward with the strategy. Thanks for the time and support, and look forward to earnings coming up here in a few weeks. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.