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Summit Midstream Partners LP (SMLP -0.99%)
Q4 2019 Earnings Call
Feb 28, 2020, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to the Fourth Quarter 2019 Summit Midstream Partners LP Earning Conference Call. My name is Hilda, and I will be your operator for today. [Operator Instructions]

I will now turn the call over to Mr. Blake Motley. Mr. Motley, you may begin.

Blake Motley -- Vice President of Strategy and Head of Investor Relations

Thanks, operator, and good morning, everyone. If you don't already have a copy of our earnings release that was issued earlier this morning, please visit our website at ww.summitmidstream.com where you'll find it on the home page or in the news section.

With me today to discuss our fourth quarter of 2019 financial and operating results is Heath Deneke, our President and Chief Executive Officer; Marc Stratton, 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 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 our earnings release that was issued earlier this morning for a listing of factors that could cause actual results to differ materially from expected results.

Please also note that on this call, we'll use the terms EBITDA, adjusted EBITDA and distributable 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.

And with that, I'll turn the call over to Heath.

J. Heath Deneke -- President and Chief Executive Officer

Okay. Thank you, Blake, and good morning, everyone. So earlier this morning, Summit reported fourth quarter 2019 adjusted EBITDA of $77.5 million, which was a new quarterly record. And this record was driven by record liquid volumes and that averaged nearly 119,000 barrels per day in the Williston Basin and a combination of higher volumes in many of our other segments and lower expenses relative to the third quarter of 2019. Distributable cash flow totaled $47.1 million, which generated a distribution coverage ratio of four times for the quarter based on our quarterly distribution of $0.125 per unit and enabled us to cover our common unit distribution by $35.4 million. So 2019 was certainly a challenging year for Summit and really for the midstream sector overall.

Looking forward into 2020, we are expecting the challenging macro backdrop to continue, which we think will result in further declines in drilling and completion activities across North America. The oil and gas market is currently in oversupply situation, which of course is weighing heavily on today's commodity prices. The natural gas market is particularly challenged and we are witnessing in real time the impact that the production surplus and one of the warmest winters that we've had on record is having on forward prices. Across the spectrum, we are seeing upstream companies respond to lower prices like they should with lower rig counts and deferred completion activity.

Longer term, we are bullish on natural gas, but we expect prices will remain at depressed levels throughout 2020 even with the expected drop in drilling and completion activities. Likewise, we are bullish on oil prices in the coming years as the supply treadmill accelerates and markets become more dependent on U.S. shale to balance. However, given current surpluses, all markets are continuing to rely more on OPEC cuts in the near-term, the balance softening demand, which we believe is keeping an overall lid on prices.

Given expectation of lower prices, coupled with ongoing capital market constraints in the upstream sector, we are expecting an approximately 45% reduction in new well connects across our gathering systems in 2020 as compared to 2019. While we're certainly disappointed with the lower activity levels, we do believe that the 2020 guidance range announced this morning reflects a commodity environment that we're currently in and the budget constraints that our customers are facing.

Many of our counterparties are well-hedged in 2020, and approximately 70% of the total well connects that are in our 2020 plan are DUCs, which we believe typically represents the highest incremental use of capital for our producers. The balance of new drilling and completion activities on our system has been highly scrutinized. And at this time, it appears to be fairly well locked-in to our producers' 2020 capital budgets.

We'll provide more detail around guidance later on in the call, but first I wanted to remind investors that we began implementing a plan designed to mitigate the impact of these industry headwinds, strengthen our balance sheet, increase our financial flexibility and rightsize our overall cost structure. This plan was initiated in the second half of 2019. And I would like to express my sincere gratitude to the entire organization for responding to the call laid out by both senior management and our board.

I really applaud the hard work, the positive attitude, the can do spirit exhibited by our employees. And I'm very pleased with the progress that we've been able to make on a number of these transformational initiatives today. Now these include the partial payment of the DPPO which was an agreement by our sponsor to take back $71 million of common equity at roughly a 40% premium to market and an extension of the remaining $180.75 million DPPO payment from 2020 to 2022.

Our financing transaction to shift the next $80 million of Double E capital investments to TPG Capital at a 7% annualized distribution rate, while retaining the long-term upside for the project; our decision to reduce the quarterly distribution by 56.5% to $0.125 per unit which will enable us to incrementally retain over $60 million of annualized cash flow that we will be using to accelerate deleveraging and enhance our financial flexibility; our continued commitment to reducing costs across our organization and enhancing operating margins, which we expect will reduce 2020 just by at least $10 million and up to $20 million of an annual run rate expense thereafter. And finally, our enhanced capital discipline and a higher return threshold for incremental capital investments as represented by our expectation for 2020 capital expenditures including $10 million are related to Double E will be less than $70 million.

In addition, we are having constructive conversations on several fronts related to divestitures and joint venture opportunities within our legacy and core assets. While we will continue to evaluate these opportunities in a very patient and disciplined manner, we are optimistic that we will enter into accretive transactions in 2020 that would significantly improve our ability to reduce debt and increase our financial flexibility.

So shifting back to our 2020 outlook, earlier this morning, we disclosed adjusted EBITDA guidance of 2020 -- of $260 million to $285 million. This range is down from $287 million of adjusted EBITDA that Summit generated in 2019, which of course is primarily due to the slowdown in the upstream activity levels that I touched on earlier. I'll let Marc speak to some of the detailed segment level assumptions later in the call, but I would like to kind of touch on a few high level themes and key considerations behind our 2020 outlook.

As previously mentioned, our top-line volume and revenue assumptions are based on the latest drilling schedules and production forecast from our customers, most of which have been updated in the recent weeks. We have -- are expecting approximately 150 new wells brought on the line in 2020, which is compared to more than 260 wells that were brought on in 2019. However, approximately 70% of the new wells scheduled in 2020 have already been drilled, as I mentioned, and are in the queue for completions this year. The remaining 30% of connections have all been permitted and have been recently reaffirmed by our customer base.

Additionally, we do have six rigs currently operating today, which gives us further confidence that we'll see these new wells turned on line. We've also incorporated a significant amount of risk into each of our customers' development plans and activities, are particularly those in the second half of the year. This is intended to address the potential for well completion timing delays, discount to initial production rates and reductions in activity levels. We believe this level of risking is certainly appropriate and warranted given the unstable outlook in crude oil, NGLs, and natural gas prices, plus just the general capital market constraints that many of our customers are facing.

To provide context, if our customers hit their latest plans, which were recently provided to us, we believe that we will achieve the high-end of our guidance range of $285 million. As an example, the lower end of guidance range comes into play if reality proves to be more severe than the substantial risking that we've already incorporated into the midpoint of our range. As an example, in the low-end of our guidance, we could accommodate a complete deferral of new well activity in the Utica and Marcellus regions that are currently scheduled to come online during the second half of the year. While we think that outcome is very unlikely given the plans and commentary we are hearing from our customers, we do believe it is -- it reflects the conservatism that we believe we have baked into our guidance range.

The guidance also incorporates approximately $9 million of lower EBITDA in 2020 compared to 2019 as a result of contractual MVC step-downs including a $4.8 million decrease in the Barnett, the $3.3 million decrease in the Piceance and $1 million decrease in the Williston Basin. Finally, our outlook incorporates $10 million of cost savings that were implemented in the -- late in the fourth quarter of 2019, but does not include the potential upside associated with the up to $20 million run rate that we believe we can achieve by 2020.

While we think it is critical to be transparent with our public stakeholders on the challenges we face, I would be remiss if I didn't touch on some of the bright spots that I'm excited about with respect to 2020 and beyond. So first, choppy markets, like the ones we are doing today, really highlight the value of having a diversified business model. Our legacy areas in particular are much less prone to cash flow volatility given the mature wedge of low declining PDP production and high levels of MVC underpinnings throughout 2026.

In 2019, our Piceance, Barnett and Marcellus business generated $162 million of combined EBITDA, and we only spent roughly $3 million of combined capex. These business units will continue to generate high levels of free cash flow for Summit in 2020. We believe this is going to be instrumental in our deleveraging process. These assets also represent a call option with respect to our ongoing A&D program.

Second, the Williston remains a strong and resilient business unit for us as represented by our record liquids throughput in the fourth quarter, which generated run rate annualized EBITDA of over $80 million. We view the Williston as the most attractive unconventional production base in the North America. And that belief is certainly proved out, particularly when you look at how rig counts have held steady relative to many other basins including the Permian. We are highly encouraged by many of the well results we are seeing on the system and are excited to see activities trend north in the Central Williams County, which we believe has become largely delineated over the or well delineated over the past 18 months. This area generates drilling economics that compete favorably with the traditional core south of the river and with a much longer inventory runway. We view the Williston as a long-term growth engine for Summit and we believe that we can execute on this at attractive invested multiples given the operating leverage that we currently have on the existing platform.

Third, 2019 was a transformational year for Summit in terms of bringing on two major gathering and processing complex in the DJ and the Permian Basin. Both systems ramped nicely over the course of 2018 and we're excited that the well results in both areas continue to meet or exceed our customer expectations, which we believe will result in additional volume growth in 2020 and beyond despite the slowdown in the upstream sector.

In addition, we are thrilled to announce the financial partnership with TPG on the Double E project at the end of 2019. We believe this further validates the high quality nature of the project and the credit worthiness of our existing shipper base. We remain enthusiastic about the long-term upside of the project and our ability to capture growing natural gas volumes in New Mexico which will feed some of the new takeaway pipelines that are being built out of Waha.

Additionally, we continue to make great progress on the project. We expect to receive our 7(c) certificate from FERC in the third quarter of 2020. This milestone will facilitate our ability to raise institutional project financing for the majority of the remaining Double E development costs, which we believe will further shift obligations away from Summit's balance sheet, while lowering the project's overall cost of gap.

Finally, the Northeast often gets painted with a broad brush. And while we acknowledge that this is a challenging market, we think we have a very good handle on the range of outcomes, particularly for 2020. And we believe we've appropriately accounted for the downside risk in our guidance. In this region, more so than really anywhere else, our customers are focused on quarterly free cash flow generation and managing productions within firm transportation commitments. Both concepts necessitate new production to offset PDP declines and we believe that converting DUCs in the flowing production is often times the most economic use of upstream capital. This belief has been validated by our customers and provides a foundation of our 2020 plan which focuses almost exclusively on activity from wells that have either been drilled or are being drilled presently.

Additionally, I'd like to applaud our commercial team for being creative on ways to enhance our system, while minimizing capital spend. For example, earlier this month, we executed an agreement with a new customer that will facilitate volumes from a new four well pad site in the second half of 2020. Throughput from this new pad site will earn a relatively lower gathering fee compared to the rest of the system. However, 100% of the capital expenditures will be incurred by a third-party. We expect to generate capital-efficient EBITDA growth in the Utica given that the backbone of our system is fully built out, but also think that there are other ways to work with customers and other midstream peers to optimize the use of our existing capacity and stimulate upstream activity on the systems over a multi-year period of time and we'll continue to work diligently to do so.

As I mentioned earlier, we are going to focus on controlling what is in our control, and capex is certainly one of those items. We expect total capital expenditures to range from $50 million to $70 million in 2020, which includes investments in Double E. Our 2020 capex guidance excludes all, but $10 million of capital that we expect to invest in Double E. There are number of projects, primarily new well pad connections, some line looping projects in the Williston and completing construction of a new power substation in the DJ which will all account for the vast majority of the spin and all have been highly scrutinized and in general are being developed at sub five time investment multiples.

So with that, let me hand the call over to Marc to review our financial results.

Marc Stratton -- Executive Vice President and Chief Financial Officer

Thanks, Heath, and good morning, everyone. I'll begin by walking through the segments that comprise our core focus areas. Starting with the Utica Shale segment. The SME system averaged 254 million cubic feet day in the fourth quarter and segment-adjusted EBITDA totaled $8.6 million, which was up approximately $700,000 over the third quarter of 2019.

Segment results included a $2.1 million payment related to a contract amendment with a customer that resulted in a partial release of acreage from our dedication area. Quarterly results also benefited from two well completions in October, but production from these new wells was offset by sooner than expected declines from four wells that were completed in the second quarter, as well as customer-related production interruptions behind our TPL-7 connector. While we expect that the production decline on these wells is more the exception than the rule, we are conservatively considering this data in our risking of future production expectations across this system.

For 2020, we expect for Utica Shale segment-adjusted EBITDA to increase by approximately 15% over 2019. Of note, one of our customers is currently completing a 150 million a day, five well pad site, which is expected to be online next month. And we expect our other customer to commission two DUCs in the second quarter of 2020, which is a delay from the first quarter.

Turning to our Ohio Gathering segment. Adjusted EBITDA totaled $9.5 million for the quarter, which represented $900.000 decrease from the third quarter, primarily due to lower volume throughput and higher expenses. Gross volumes in the fourth quarter of 2019 were down 6.6% from the third quarter, primarily as a result of natural production declines from 13 new wells that were turned in line in the third quarter of 2019 and no new well connections in the fourth quarter. We expect our OGC customers to commission 20 new wells in 2020, all of which have already been drilled. We do not intend to fund our capital contributions to Ohio Gathering in 2020 given that capex is largely focused in the lower volume condensate window.

Our Williston Basin segment had a particularly strong fourth quarter with segment-adjusted EBITDA of $20.2 million, up from $13.8 million in the third quarter, primarily due to record liquids throughput of 119,000 barrels per day. As a reminder, our third quarter results for the Williston included $3.9 million of non-recurring items that resulted in segment-adjusted EBITDA for that period that was unusually low.

Volumes in the fourth quarter benefited from 12 new wells that were turned in line, all of which generated a dual crude oil and produced water revenue stream, together with continued strong performance from a backlog of 39 wells that were commissioned late in the third quarter. For 2020, we expect nearly a 50% reduction in total well completions relative to 2019, driven in large part by a reduction in drilling activity by one of our historically more active customers on the Polar and Divide system that is shifting activity to other parts of the basin to delineate acreage, improve up additional drilling inventory. However, we are encouraged by the optimism we are hearing from our other customers about accelerating development activities in 2020 in the Northern and Central Williams County area, which has generated a number of highly productive wells for our gathering system over the last 12 months.

DJ Basin's segment-adjusted EBITDA totaled $6.6 million in the fourth quarter of 2019, a 1.1% increase over the third quarter of 2019 due to a 6.1% increase in volume throughput and a more favorable mix of revenue between our customers, partially offset by a $500,000 non-recurring true-up expense related to prior period NGL specs. Volumes were positively impacted by 13 new well completions by our Wyoming-based customer, which generates a processing-only fee. Our customers are currently operating one drilling rig and have more than 25 wells in DUC inventory. We expect approximately 50 new well connections in 2020, which we expect will increase total system throughput by approximately 15% relative to our fourth quarter 2019 volume levels.

Our Permian Basin segment generated $100,000 of segment-adjusted EBITDA in the fourth quarter of 2019, down from approximately $200,000 in the prior quarter. Fourth quarter results were positively influenced by 13 new well connects in the period, which increased volumes by 25% over the third quarter. However, results were negatively impacted by higher operating expenses during the quarter. Our customers are currently operating one drilling rig and have six in DUC inventory, all of which we expect will be commissioned in 2020.

Our legacy areas, which include the Piceance, Barnett and Marcellus segments, generated $39 million of combined segment-adjusted EBITDA in the fourth quarter of 2019, which translated into $38.8 million of free cash flow based on $200,000 of combined maintenance capex incurred in the period. We do not anticipate any material activity from our customers in the Piceance and Barnett in 2020, which we expect will result in PDP volume declines for both systems throughout the year. We're anticipating steeper segment-adjusted EBITDA declines in these areas as a result of certain customer MVC step-downs in the Barnett and in the Piceance. Collectively, we expect for the Piceance and Barnett segments to generate approximately $120 million of free cash flow in 2020 as a result of the limited capital requirements associated with maintaining the systems.

In the Piceance Basin, we expect to benefit from the disposition of an underutilized gathering and processing subsystem that included over 200 miles of pipeline, but represent less than 25 million cubic feet per day of volume throughput. The transaction, which was effective December 1, 2019, generated sale proceeds of $12 million and has significantly reduced our go-forward operating expenses, which will enable more effective operation and optimization of our higher utilization areas in the Piceance.

Finally, in the Marcellus Shale segment, we anticipate an uptick in activity in 2020 with 9 DUCs that are currently in inventory and scheduled for completion in mid-year and an additional nine wells that are currently being drilled and are expected to be completed in the fourth quarter. These wells are located in close proximity to five wells that are customer-commissioned in September of 2019, which helped facilitate an 8% increase in volume in the fourth quarter. As a reminder, throughput in this area is gathered by third-party systems and delivered to central receipt points located throughout our high-pressure system. So there is zero capex for Summit associated with realizing the benefit of this volume growth.

Now turning back to the partnership. SMLP reported fourth quarter financial results that included $77.5 million of adjusted EBITDA and $47.1 million of distributable cash flow. Relative to the third quarter of 2019, adjusted EBITDA was up 7.7% and DCF was up 12%. SMLP reported a fourth quarter 2019 net loss of $327.1 million, primarily related to $336.7 million non-cash impairment to our equity investments in Ohio Gathering and Ohio Condensate, a $14.2 million non-cash impairment related to the $12 million sale of the sub-system in the Piceance and $5.7 million of restructuring, severance and transaction expenses associated with the November 2019 DPPO amendment and the ongoing internal initiative to reduce our cost structure. The Ohio Gathering impairment is a result of our lower, near-term and longer term outlook for volumes and cash flows behind the system as a result of the lower commodity price backdrop. We did not fund capital contributions to Ohio Gathering in 2019 as capital spending has been primarily focused on the connection of lower volume condensate wells.

Capital expenditures for the fourth quarter of 2019 totaled $30.6 million, including $3.6 million dollars of maintenance capital expenditures. SMLP also made capital contributions totaling $7 million in the fourth quarter with respect to our 70% equity interest in the Double E pipeline project. These investments were approximately $8 million lower than the third quarter of 2019 and were primarily related to expenditures in our Williston and DJ Basin segments.

We had $677 million outstanding under our $1.25 billion revolving credit facility at December 31, 2019 and approximately $100 million of available borrowing capacity due to financial covenant limitations. Total leverage at quarter end was 5.1 times compared to a maximum limit of 5.5. Excluding the potential impact of potential asset divestitures and/or joint ventures, which we are actively pursuing, we expect for 2020 leverage in the 4.9 times to 5.2 times area and we expect to generate approximately $50 million of free cash flow in 2020 to reduce outstanding debt.

And with that, I will turn the call back to Heath for closing remarks.

J. Heath Deneke -- President and Chief Executive Officer

Thank you, Mark. So I'd like to close my comments by reiterating a few themes that we discussed during the third quarter 2019 call. While we're certainly disappointed with the pullback reflected in the most recent drilling schedules provided our customers, we remain adamant about the importance of being transparent with our stakeholders and setting realistic expectations that we're confident we can achieve.

We will continue to closely monitor activity and production levels throughout the year and we'll provide updates on our outlook as we get new information. I want to emphasize the management team and the board of directors are fully committed to take every prudent action that we can to strengthen the balance sheet and create long-term value for our unitholders.

Despite further weakening of our 2020 expectations since our November call, steps that we have already taken will enable us to reduce approximately $50 million of debt in 2020. And we have a lot more opportunities ahead of us to further improve the balance sheet. In doing so, we will not compromise our commitment to providing safe, responsible and reliable operations for our customers and we will continue to invest in our employees to maintain a healthy and vibrant workforce that we believe will be instrumental in repositioning the company for success in the future.

Very proud of what our employees have accomplished since I joined Summit this past September, and I'm very confident in the team's commitment to stay focused on the work ahead and drive toward success. Given the quality of our employee base, the quality of our assets and the support of our sponsor and the board of directors, I remain very optimistic about the future of Summit.

And with that, operator, we'd like to open the call up for your questions.

Questions and Answers:


Thank you. [Operator Instructions] We have a question from Kyle May from Capital One Securities.

Kyle May -- Capital One Securities, Inc. -- Analyst

Hey, good morning. I appreciate all the details you've provided for your outlook on 2020. But starting with the way that you're talking about risking customer development plans, can you talk more about, I guess the approach you're taking, the considerations? And then how this compares to your planning in recent years?

J. Heath Deneke -- President and Chief Executive Officer

Yeah. Hey, good morning, Kyle. It's Heath here. So look, I think to hit the last part of your question, how does it compare to recent years. I think we've done a lot more work this year, really digging in with our customers and not -- and keeping actively digging in all the way up to this release. And so I think, if you think about the range that we have here, what's different about this year is that we believe the midpoint has significant risking relative to the forecast that we've actually received from the producer base.

So I think at the high point of the range, if you actually took the drill schedules and volume forecast from the customers and they perform to those, and again, these are expectations that were reaffirmed here over the past couple of weeks, then we would come out closer to the high-end of the range. The midpoint of the range is really our risking of both volumes, the type curves and the expected volumes, as well as some pullback in activity, as well as just deferral of some of the timing of the drill schedules that we have in place. That kind of gets us to the midpoint.

If we think about the downside case or the low-end of the range, that is really a, what I would kind of call a fairly substantial pullback in activity, largely in the second half of the year that would have to happen to -- for that -- for the low-end of our guidance to come into place. So like an example I gave on the call was if -- relative to our moderate case or even our -- yeah, relative to our moderate case, if we had a complete turn off of new well connect activity in the Appalachia region for example in the second half, we would still come within our guidance range.

Likewise, if we're kind of at our midpoint assumptions and we have more pullback in crude in the Williston or DJ Basins, we think we could still come in north of our 260. So look, I think -- look, we obviously -- there's a lot going on in the old markets today and worldwide. And so we can't account for every circumstance or situation. But when I think -- when you look at the majority of the plans that our producers have, the way that we've attacked risking them this year and the way that we've approached guidance, I think the management team and I even in light of recent news we feel comfortable that we ought to come in somewhere around the midpoint to the upper side of our range. And we have accommodate as we said in the bottom half just further more difficult commodity environments going forward.

Marc Stratton -- Executive Vice President and Chief Financial Officer

Yeah. And Kyle, just relative to years past. I mean obviously we've taken a much more conservative view, just given the commodity price backdrop and what we're hearing from our customers. So just to kind of quantify a little bit more for you. Effectively the wells that we have visibility toward coming on here in the next few months to quarters. We've effectively applied a one to two month discounting to that timing. Those wells that are expected in the second half of the year upwards of four months of risking we've applied there. So we think a fairly healthy level of discounting that we've applied and something that's probably warranted given the current backdrop.

Kyle May -- Capital One Securities, Inc. -- Analyst

Got it. Okay. That's really helpful. And then for my next question, revisiting the asset sale program. I realize for competitive reasons, you probably can't give us specifics. But from a high level perspective, can you talk about the level of interest from other parties or any maybe potential separation in the bid-ask spread on these assets? Just trying to get a sense for the potential rate of improvement to your leverage ratio that you could see this year?

Marc Stratton -- Executive Vice President and Chief Financial Officer

Yeah. I mean we'll -- I think what we can say at this point, I definitely feel like the interest level is high. I think we are in two of the processes that we kind of have under way. We have a fair amount of folks that are really digging in and spending a lot of time. I will say, I think our legacy assets, we're continuing to -- did not really see bid values that we think are going to be constructive. But in some of the core areas where we're evaluating either complete sales or joint ventures, the indications we're getting back are strong and the interest level is extremely high. And I think the transactions will be very credit accretive if they come in around what the current expectations are.

Kyle May -- Capital One Securities, Inc. -- Analyst

Okay. Got it. Thanks a lot guys.


Thank you. [Operator Instructions] We have a question from Elvira Scotto from RBC Capital Markets.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey, good morning, everyone. Just a quick question for me. You talked about in the Utica, a contract amendment that resulted in a $2.1 million payment and then a release of acreage dedication. Can you provide a little more detail on that and just how to think about that kind of going forward?

Ryan Simmons -- Senior Vice President-Commercial

Yeah. This is Ryan Simmons. Good morning, Elvira. That was an area on the southern end of our system. The acreage was undevelopable by the producer. And so they approached us. They were looking to sell that acreage. We amended the contract to release it and got an attractive payment for that.

Elvira Scotto -- RBC Capital Markets -- Analyst

Okay. Thanks. That's all I have for now. Thank you.


Thank you. [Operator Instructions] At this moment, I would like to turn the call back to Mr. Heath Deneke for closing remarks.

J. Heath Deneke -- President and Chief Executive Officer

Absolutely. Well, thanks again everyone for joining the call today. Look, as we said, and I think this is obviously some challenging times, we're definitely disappointed with the pullback that we've had year-over-year in drilling activity. But definitely want to reiterate, the management team, the board, we're fully committed to take every action, prudent action that we can. We don't like where our leverage is.

And so everything that we're doing is in the context of strengthening the balance sheet. And I think we're going to make some meaningful progress on that, not only with the $50 million that we expect to be able to pay down today, not including asset sales, we remain confident that we're going to be able to get some deals done that we think can move the needle on our overall leverage. So we sit here today. We feel confident that we've got a lot of levers to pull. And we really have a high degree of confidence in the midpoint to upper-end of our guidance. And we will commit to provide updates throughout the year as we get new information or any of these ranges shift.

So with that, thank you, and have a good weekend.


[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Blake Motley -- Vice President of Strategy and Head of Investor Relations

J. Heath Deneke -- President and Chief Executive Officer

Marc Stratton -- Executive Vice President and Chief Financial Officer

Ryan Simmons -- Senior Vice President-Commercial

Kyle May -- Capital One Securities, Inc. -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

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