What happened

Units of Summit Midstream Partners (NYSE:SMLP) were down more than 15% as of 10 a.m. EST on Tuesday after the master limited partnership (MLP) unveiled a string of strategic actions aimed at improving its financial position.

So what

Summit Midstream's board of directors named current COO Leonard Mallett as interim CEO, replacing Steve Newby, effective immediately. While the board selected Mallett to help provide leadership for the company's new strategic actions, it plans to search for a permanent CEO.

A bright red arrow going down, with numbers in the background and a declining bar chart

Image source: Getty Images.

Meanwhile, in a widely anticipated move, Summit Midstream slashed its sky-high distribution in half to help improve its financial profile. In addition to that, the company sold its noncore Tioga Midstream gathering system in North Dakota for $90 million to help pre-pay $100 million of the deferred purchase price obligation it owes its parent company for a previous acquisition. Summit Midstream and its parent also agreed to fix the remaining payment, which is due next year, at $303.5 million. Furthermore, they eliminated the costly management fees Summit pays to its parent in exchange for 8.75 million units.

These strategic moves will enable Summit Midstream to retain about $85 million of annual incremental cash flow, which it will use to help fund expansion projects. The company anticipates that it will invest $150 million to $175 million in growth capital this year, with its largest project being the construction of a second gas processing plant in the DJ Basin. However, the company and its partner ExxonMobil also expect to move forward with their Double E Pipeline, which would transport natural gas from the Delaware Basin to a hub in Texas. While Exxon will finance part of that pipeline, which is important for supporting its growth in the region, Summit needed to increase its financial flexibility so that it can also participate in this project.

Now what

Summit Midstream took a big step toward shoring up its financial situation by selling Tioga Midstream and slashing its distribution. However, the company still has some work to do. Not only does it owe its parent the final payment for a transaction from a few years ago, but it could potentially start construction on Double E with ExxonMobil. Because of those financial obligations, Summit will likely sell additional assets and might have to further reduce its distribution to ensure it has the funds it needs.