Enable Midstream Partners (ENBL) Q4 2020 Earnings Call Transcript

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Enable Midstream Partners (ENBL)
Q4 2020 Earnings Call
Feb 24, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Tammy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enable Midstream fourth-quarter 2020 earnings conference call and webcast. [Operator instructions] Thank you.

Mr. Matt Beasley, you may begin your conference.

Matt Beasley -- Assistant Treasurer and Senior Director, Investor Relations

Thank you, and good morning, everyone. Presenting on this morning's call are Rod Sailor, our president and CEO; and John Laws, our chief financial officer. Earlier this morning, we issued our earnings press release and filed our Form 10-K with the SEC. Our earnings press release, Form 10-K filing, and the presentation that accompanies this call are all available in the Investor Relations section of our website.

We will also be posting a replay of today's call to the site. Today's discussion will include forward-looking statements within the meaning of the securities laws. Actual results could differ materially from our projections and a discussion of factors that could cause actual results to differ from projections can be found in our SEC filings. We will also be referencing non-GAAP financial measures on today's call, which we have reconciled to the nearest GAAP measures in the appendix of today's presentation.

We invite you to review the disclaimers in this presentation for both forward-looking statements, including statements pertaining to our recently announced transaction with Energy Transfer and non-GAAP financial measures. In light of the recently announced transaction, we do not plan to take questions at the end of today's call. I am sure that some of you have questions about the transaction. And I believe that you'll find answers to those questions when the Form S-4 for this transaction is filed with the SEC.

Now we'll get started, and I will turn the call over to Rod Sailor.

Rod Sailor -- President and Chief Executive Officer

Thanks, Matt. Good morning, and thank you for joining us today. I will begin my remarks on Slide 4 with an overview of last week's announcement that Enable and Energy Transfer have entered into a merger agreement, where Energy Transfer will acquire Enable in a $7 billion transaction. As you know, Energy Transfer is one of America's largest and most diversified midstream energy companies.

Energy Transfer has assets in all major producing basins and transports a significant portion of oil, natural gas, natural gas liquids, and crude oil produced in the United States. The combination of complementary assets provides scope and scale with basin, commodity, and customer diversity, which have been key elements of Enable's long-term strategic goals. Enable's transportation and storage assets complement Energy Transfer's vast interstate and intrastate pipeline system. Enable's pipeline assets in the Mid-Continent and Ark-La-Tex regions already interconnect with Energy Transfer pipelines, including Midcontinent Express, Trunkline, Panhandle Eastern Pipeline, Florida Gas Transmission, Houston Pipeline, and Regency.

Combining Enable's gathering and processing assets with Energy Transfer's assets will provide additional scale in key basins. Enable and Energy Transfer's gathering and processing assets are already connected to each other through our Wildcat project, which links Enable's Anadarko Basin gathering systems to Energy Transfer's gathering, processing and transportation assets in Texas. Potential commercial synergies in the gathering and processing segment include the opportunity for further integration of Enable's Anadarko gathering and processing complex with Energy Transfer's fractionation assets on the U.S. Gulf Coast.

This all-equity MLP to MLP transaction enhances tax efficiency for unitholders and allows current Enable unitholders to participate in the upside potential as integration opportunities are realized. Importantly, Energy Transfer shares Enable's commitment to responsibly and safely delivering energy and has made extensive corporate responsibility disclosures. Under the terms of the transaction, Enable common unitholders will receive 0.8595 Energy Transfer common units for each Enable common unit. And upon closing, Enable unitholders are expected to own approximately 12% of Energy Transfer's outstanding common units.

Each outstanding Enable Series A preferred unit will be exchanged for 0.0265 Energy Transfer Series G preferred units, and the transaction will include a $10 million cash payment for Enable's general partner. The transaction is expected to close in mid-2021 and is subject to the satisfaction of customary closing conditions, including Hart-Scott-Rodino Act clearance. You can find more details on the transaction in an S-4 filing expected to be made by Energy Transfer within the next several weeks. Turning to the next slide, I would like to provide an update on Enable's response to Winter Storm Uri, which impacted much of the U.S.

in February. This winter storm-affected areas across Enable's footprint, bringing an extended duration of record-breaking cold temperatures and significant snowfall, sleet, and freezing rain, affecting millions, and challenging the delivery of critical energy resources to support vital human needs. As one of the largest transporters of natural gas in the region, Enable employees across the company immediately went to work around the clock to maximize natural gas deliveries, including coordinating with producers to increase the amount of natural gas gathered and working to keep critical Enable infrastructure functioning despite extreme weather. While there were many companies that made extraordinary efforts, I want to specifically recognize Continental Resources for its efforts to sustain natural gas production and deliveries during the weather event.

Rather than waiting until the weather passed to restore production, Continental employees worked diligently in extreme conditions to bring critical natural gas supply back online. Enable worked closely with Continental to ensure production restoration efforts were focused in areas that could have the most significant impact. Continental also secured key pieces of equipment to facilitate winter operations and shared that equipment with Enable to make sure Enable's facilities could continue to gather, compress and transport natural gas. This event demonstrated the strength of Enable's interconnected natural gas gathering, processing and transportation, and storage systems, which provided Enable with information on natural gas gathering activity and transportation demand to better utilize our natural gas storage assets to facilitate stable supply.

And while the full impact of this event is not yet fully quantifiable, our teams in the field and the office continue to work diligently with our customers to bring production behind our assets back online and minimize the financial impact. There are so many amazing stories to share here. But in summary, the Enable team came together to go to work and get things done under extremely difficult circumstances. And this event made clear the importance of everyone's role at Enable in supporting the health, safety, and energy needs of the communities in which we live, work, and beyond.

The next slide highlights how Enable moved quickly and decisively during an unprecedented year in 2020. In April, we announced significant actions designed to increase our financial flexibility and liquidity, including reducing anticipated capital expenditures, and operating expenses, and reducing the partnership's quarterly common unit distribution. These decisions were not easy, but they were the right decisions to position Enable for the future. Due primarily to resilient volume performance and significant progress on our cost reduction objectives, we exceeded our full-year 2020 outlook for adjusted EBITDA and distributable cash flow.

This solid 2020 performance allowed us to fully fund our capital program and distributions and, at the same time, reduce our total debt. As the pandemic began early in 2020, we immediately implemented the partnership's business continuity plan to reduce COVID-19-related risks, while maintaining continuity in providing vital energy infrastructure services. As a result of our employees' hard work and dedication, we avoided material COVID-19-related impacts to systems operations and critical business functions. Finally, we released Enable's inaugural Sustainability Report in November, highlighting the partnership's commitment to transparency and sustainable business practices.

Moving now to the next slide, I want to cover accomplishments in our transportation and storage segment. During 2020, we contracted over two million dekatherms per day of firm fee-based transportation capacity at a volume-weighted average contract life of over four years. This included recontracting substantial capacity with EGT's largest customer, CenterPoint Energy Resources Corp., through 2030 and extending most MRT customer contracts through 2024. We made significant progress on our Gulf Run Pipeline project in 2020, including filing certificate applications for the project and receiving our environmental assessment.

We have responded to all FERC data requests and remain optimistic the project will receive its final certificate in the coming months. Finally, we recently renewed 200,000 dekatherm per day of capacity at our SESH joint venture with a utility customer through 2030, demonstrating the long-term value of SESH's capacity to serve Southeast demand markets. Turning to gathering and processing highlights on the next slide. As the commodity price outlook has improved, Enable has seen an increase in rigs around our footprint, with 11 rigs currently drilling wells expected to be connected to our gathering systems, an increase of three rigs in the Ark-La-Tex Basin, and two rigs in the Anadarko Basin from last quarter's update.

Substantial DUC inventory remains behind Enable's system with 75 DUCs behind our Anadarko Basin system and 82 DUCs behind our Williston Basin system. These DUCs provide an inventory of wells producers can complete without investing additional drilling capital. We know investors are growing increasingly concerned of regulatory risk for energy companies, especially with the recent ban on leases and permits for oil and gas drilling on federal lands. I am pleased to report that less than 2% of acreage dedicated to Enable rests on federal lands with most of these federal lands located in North Dakota and Western Oklahoma.

I will now turn the call over to John to discuss our fourth-quarter and full-year 2020 results.

John Laws -- Chief Financial Officer

Thank you, Rod, and good morning, everyone. I will now cover a few of our key operational and financial metrics for the quarter and year. As always, you can find a more detailed and comprehensive overview of our financial and operational results in our fourth-quarter earnings release and in our 10-K, both of which were released earlier this morning. Turning to our operational performance overview slide, our natural gas gathered, processed, transported and crude oil and condensate gathered volumes saw decreases compared to the full year of 2019, primarily as a result of lower gathered volumes across all basins, inclusive of producer shut-ins in the Anadarko Basin that ended in the third quarter.

The end of the producer shut-ins and continued producer activity on our footprint did, however, drive sequential gains in our overall natural gas gathered volumes in the fourth quarter relative to the third quarter of 2020. Moving now to our financial results on Slide 11. We saw lower revenues and gross margin for the fourth quarter and full year of 2020 compared to the fourth quarter and full year of 2019, which was primarily a result of lower volumes and lower prices as our customers and the economy worked through a significant period of uncertainty, driven primarily by the COVID-19 pandemic. Net income was higher for fourth-quarter 2020 but was lower for the full year when compared to the same periods a year ago.

While net income benefited from lower O&M and G&A expenses and lower interest expense for both the quarter and full year, full-year 2020 net income was impacted by a noncash impairment of our investment in our SESH joint venture, which took place in the third quarter of 2020. Adjusted EBITDA and DCF were both lower for the quarter and full year compared to the fourth quarter and full year of 2019, primarily as a result of lower volumes and lower prices, partially offset by lower O&M and G&A expenses. Adjusted EBITDA and DCF exclude the noncash impacts from changes in the fair value of derivatives and the SESH impairment. DCF also benefited from lower adjusted interest expense and lower maintenance capital expenditures for both the fourth quarter and full year.

After considering the distributions declared, Enable's full-year distributable cash flow exceeded common unit distributions declared by $382 million, fully funding our capital program. With that, I will now turn the call back over to Rod for his closing remarks.

Rod Sailor -- President and Chief Executive Officer

Thanks, John. I am very proud of everything we have accomplished this past year. The challenges we faced and overcame demonstrate the strength of our employees and their dedication to each other and to providing critical energy infrastructure services. Enable's mission is to be a partner in your success, and that has never been better demonstrated than by our response to the weather over the past few weeks and our commitment to our customers and communities.

Please stay safe, and have a good day.

Questions & Answers:

Operator

[Operator signoff]

Duration: 15 minutes

Call participants:

Matt Beasley -- Assistant Treasurer and Senior Director, Investor Relations

Rod Sailor -- President and Chief Executive Officer

John Laws -- Chief Financial Officer

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