Enable Midstream Partners (ENBL) Q1 2021 Earnings Call Transcript

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Enable Midstream Partners (ENBL)
Q1 2021 Earnings Call
May 03, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Enable Midstream first-quarter 2021 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise.

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-Q with the SEC. Our earnings press release, Form 10-Q 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 about our pending merger with Energy Transfer and non-GAAP financial measures. In light of the pending proposed merger with Energy Transfer, we do not plan to take questions at the end of today's call. The Form S-4 for the transaction has been filed, which includes a detailed overview of the transaction and a question-and-answer section. 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 update on our pending merger with Energy Transfer. In early April, the SEC declared effective the Form S-4 registration statement filed in connection with the merger and our two sponsors, CenterPoint and OG&E, have delivered written consents to approve the merger.

While these consents are sufficient to approve the transaction, all unitholders as of the record date have the opportunity to make their voices heard by returning their written consents before the consent deadline. Teams from both companies have been hard at work planning for a seamless integration, and we expect the transaction to close midyear this year, subject to certain conditions, including Hart-Scott-Rodino Act clearance. We believe the proposed merger with Energy Transfer will provide significant benefits for our unitholders. The combination of complementary assets provide scope and scale with basin, commodity and customer diversity, which have been key elements of Enable's long-term strategic goals.

This all-equity transaction provides tax efficiency for unitholders and allows our unitholders to participate in the upside potential as integration opportunities are realized. Turning to the next slide, I would like to cover a few recent highlights. Enable reported strong first-quarter 2021 results due to higher commodity prices, asset optimization and increased billings related to Winter Storm Uri. DCF exceeded declared distributions to common unitholders by $189 million for the first quarter of 2021, fully funding expansion capital expenditures for the quarter.

The quarter's strong results improved our key debt-to-EBITDA leverage metric and lowered our total debt levels. I am also pleased to report that substantially all production impacted by Winter Storm Uri is now back online. And as a result, our natural gas gathered volumes in March were higher than the average volumes for the quarter. We have made significant progress on our Gulf Run pipeline project, including recently locking in all of the pipe pricing at favorable levels through our strategic sourcing efforts.

Our plan is to build a 42-inch diameter pipeline with a capacity of approximately 1.7 Bcf per day, and it provides significant upside potential from capacity sales to other shippers. Finally, employees have returned to our office locations on a reduced capacity basis, and we continue to take steps to ensure the safety of all of our employees, customers and communities. Moving to the next slide, I will now cover accomplishments in our Transportation and Storage segment. During the first quarter, we contracted or extended over 250,000 dekatherms per day of firm fee-based transportation capacity at a volume-weighted contract life of over four years.

We recently completed a successful open season for storage capacity on our Enable Oklahoma Intrastate Transmission system, achieving higher rates than we anticipated. Finally, I am pleased to announce the EGT's MASS project went into service April 1 as planned. This project is designed to deliver gas from Oklahoma delivery points with access to emerging Gulf Coast markets and growing demand markets in the Southeast, and is underpinned by a firm five year commitment for 100,000 dekatherms per day. Turning to our Gulf Run project on the next slide, as I mentioned in my opening remarks, our sourcing efforts have allowed us to achieve pipe pricing for the 42-inch project scope at a favorable level relative to the market.

The construction contractor bidding process is expected to begin in the second quarter of 2021 and we anticipate placing the project into service in late 2022, subject to FERC approval. Turning to the Gathering and Processing highlights on the next slide, as I previously mentioned, substantially all production impacted by Winter Storm Uri is now back online. And as a result, we saw volumes in March that were higher than the quarter average. Strong rig activity and well results drove total Haynesville natural gas volumes to a record high in April according to S&P Global Platts Analytics.

And Enable's assets are well positioned to benefit from the growing sources of demand in the region and from Southeast and Gulf Coast markets. Producer activity continues around our footprint with 10 rigs currently drilling wells, expected to be connected to our gathering systems. And there are currently 181 DUC wells behind our systems, which provide an inventory of wells producers can complete without investing additional drilling capital. I will now turn the call over to John to discuss our first-quarter 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. As always, you can find a more detailed and comprehensive overview of our financial and operational results in our first-quarter earnings release and in our 10-Q, 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 first quarter of 2020, primarily as a result of lower producer activity and the weather-related volume curtailments and production freeze-offs from Winter Storm Uri.

Looking at our financial results on the next slide, Uri certainly brought with it some operational challenges, but as Rod indicated earlier, our integrated platform of gathering and processing and transportation and storage assets performed very well together and drove higher revenues, gross margin, net income, adjusted EBITDA and DCF for the first quarter of 2021 compared to the first quarter of 2020. And of course, I'd be remiss if I did not mention that none of these results would have been achieved if it were not for the tireless dedication of our employees in the field and in the office, who worked long hours through inclement weather to maintain our operations. The increases in our revenues and gross margin were primarily a result of higher commodity prices, asset optimization and increased billings related to Winter Storm Uri, offset by the lower gathering and processing volumes I mentioned earlier and some unfavorable impacts associated with the changes in the fair value of commodity derivatives. Net income benefited from lower O&M expenses, which was driven by our continued focus, including the benefit of actions taken in prior periods and lower interest expense as well as the absence of non-cash impairments in the first quarter of 2021 when compared to $28 million of impairments for the first quarter of 2020.

Adjusted EBITDA and DCF were up 15% and 22%, respectively, and provided strong cash flow to fully cover our distributions and expansion capital program and improve our leverage profile. One item of note is that during the quarter, the calculation for the rate of distribution on Enable's Series A preferred units converted from a fixed annual rate of 10% to an annualized floating rate based on the sum of a three month LIBOR rate plus eight and a half percent. After considering the distributions declared, which reflected a blended fixed and floating rate of distribution on the Series A preferred units and the distribution on common units consistent with its first-quarter distributable cash flow, exceeded common unit distributions declared by $189 million, generating a distribution coverage ratio of 3.63 times for the quarter. At the same time, our total debt to our trailing 12 months adjusted EBITDA improved from 4.27 at the end of 2020 to 4.06 as of the end of the first quarter of 2021.

With that, I'll now turn the call back over to Rod for his closing remarks.

Rod Sailor -- President and Chief Executive Officer

Thanks, John. And thanks to everyone for participating in our call today. Let me also thank all of our employees for their tremendous efforts and accomplishments during the storm and the job they continue to do day in and day out to provide safe and reliable services to our customers and communities. Please stay safe and have a good day.

Duration: 11 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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