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EnLink Midstream Third Quarter 2020 Results

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   |    Thursday,November 12,2020

EnLink Midstream, LLC reported financial results for the third quarter of 2020 and announced a $100 million common unit repurchase program.

Highlights:

• Reported net income of $39.2 million and net cash provided by operating activities of $244.2 million for the third quarter of 2020.
• Achieved adjusted EBITDA, net to EnLink, of $261.6 million for the third quarter of 2020, up 3% from the second quarter of 2020 and largely unchanged from the third quarter of 2019. The resiliency of the business was driven by strong operational execution and a continued focus on cost reductions. EnLink is positioned to meet or exceed the high end of its previously announced full-year 2020 adjusted EBITDA guidance range of $950 million to $1.025 billion.
• Increased Permian segment profit for the third quarter of 2020 by approximately 7% and 28% as compared to the second quarter of 2020 and the third quarter of 2019, respectively, driven primarily by natural gas volume growth.
• Increased Oklahoma segment profit for the third quarter of 2020 by approximately 9% as compared to the second quarter of 2020, driven by an increase in natural gas volumes and cost reductions, and held flat as compared to the third quarter of 2019.
• Delivered $98.7 million of free cash flow after distributions for the third quarter of 2020, positioning EnLink to exceed the high end of its previously announced full-year 2020 free cash flow after distributions guidance range of $280 million by 5% to 10%.
• Reduced net debt by $145 million during the third quarter of 2020 and, subsequent to the end of the quarter, entered into a $250 million Accounts Receivable Securitization Facility (AR Facility), which creates additional financial flexibility at an attractive cost. As of September 30, 2020, pro forma for the application of the AR Facility proceeds, EnLink had $75 million drawn on its $1.75 billion Revolving Credit Facility (Revolver).
• Announced that EnLink's Board of Directors has authorized a common unit repurchase program for the repurchase of up to $100 million of EnLink's outstanding common units.

Chairman and CEO Barry E. Davis said: "EnLink delivered another strong quarter and is solidly on track to meet or exceed the high end of adjusted EBITDA guidance for 2020. Given the tremendous focus of our team not only on superb execution and cost reductions, but also on capital discipline, we are expecting to exceed the high end of our free cash flow after distributions guidance for the year. In addition, EnLink has announced a unit repurchase plan, providing us with another tool as we pursue a balanced capital allocation approach, which prioritizes de-levering, while valuing the generation of strong returns.

"EnLink is a sustainable, integrated company that is delivering strong financial performance, while also being a responsible operator that respects our environment, communities, employees, and partners. I am proud of the resiliency and strength our business and people have shown during these challenging times, and I look forward to maintaining our momentum into 2021 and beyond."

• EnLink recently announced a new three-year, $250 million AR Facility, enhancing financial flexibility and obtaining financing at an attractive cost.

• EnLink has a $1.75 billion unsecured Revolver, upon which $75 million was drawn at the end of the third quarter of 2020 (pro forma for the application of AR Facility proceeds). EnLink's Revolver matures in 2024 and EnLink has a strong relationship with the 21 involved banks, 17 of which are lenders under both the Revolver and EnLink's $850 million term loan, maturing in December 2021.

• EnLink continues to maintain a diversified customer base across its asset platform, which includes large integrated customers and other investment-grade counterparties. Approximately 85% of EnLink's revenues in the third quarter of 2020 were generated from investment-grade counterparties or from customers who provided credit protections to EnLink.

2020 Financial Guidance and 2021 Outlook

EnLink's previously disclosed 2020 financial guidance, below, is based upon assumptions that global energy demand continues to recover and does not take into account any potential new macro events resulting in material declines in future demand or commodity prices.

• Adjusted EBITDA, net to EnLink, for full-year 2020 is expected to meet or exceed the high end of the guidance range. Free cash flow after distributions for full-year 2020 is expected to exceed the high end of the guidance range. Based on these forecasts, EnLink is projecting that debt-to-adjusted EBITDA for December 31, 2020, will be largely in line with the level reported as of September 30, 2020.
• Total capex for full-year 2020 is trending towards the midpoint of the guidance range.
• During 2021, EnLink expects to continue to generate strong free cash flow after distributions at levels similar to 2020 expected totals, driven by strong operational execution, significantly lower capital expenditures, and continued cost management.
• Capital expenditures for 2021 are expected to be predominantly related to anticipated well connections and associated compression across EnLink's asset footprint.

Third Quarter 2020 Segment Updates

Permian Basin:

• Segment profit of approximately $46 million for the third quarter of 2020 was approximately 7% higher as compared to the second quarter of 2020 and approximately 28% higher as compared to the third quarter of 2019. Strong results for the third quarter of 2020 were driven primarily by growth in natural gas volumes, as well as continued cost reductions.
• Segment free cash flow turned positive during the third quarter of 2020, with $18 million being generated, as the main capital project, the Tiger Plant, was completed during the quarter. The Permian is expected to continue to generate strong segment free cash flow for the remainder of 2020.
• Average natural gas gathering volumes for the third quarter of 2020 were approximately 6% higher as compared to the second quarter of 2020 and approximately 23% higher as compared to the third quarter of 2019. Average natural gas processing volumes for the third quarter of 2020 increased approximately 4% and 16% as compared to the second quarter of 2020 and the third quarter of 2019, respectively.
• Average crude gathering volumes decreased by approximately 12% for the third quarter of 2020 as compared to the second quarter of 2020 and as compared to the third quarter of 2019, driven primarily by EnLink's exit of the crude oil first-purchase business in the Permian Basin during the second quarter of 2020.
• The Tiger natural gas processing plant in the Delaware Basin became operational during the third quarter of 2020, as planned. EnLink now has over 1 billion cubic feet per day of natural gas processing capacity in the Permian.
• EnLink's companywide federal land exposure is limited and relates primarily to the New Mexico portion of operations in the Delaware Basin. For the most part, operations in this area are conducted through a 50% owned joint venture, and only a portion of the joint venture's operations are conducted in New Mexico. In addition, producers have been very proactive and have accumulated a multiyear inventory of permits for leases involving federal lands.
• During October 2020, EnLink successfully completed a small, high-multiple asset sale related to the Victoria Express Pipeline and related terminals in the Eagle Ford shale play that is expected to generate $20 million of aggregate proceeds, half in 2020 and half 2021.

Louisiana:

• Segment profit of $69 million for the third quarter of 2020 was flat as compared to the second quarter of 2020 and approximately 3% higher as compared to the third quarter of 2019. Segment profit for the third quarter of 2020 included approximately $2 million of one-time expenses as a result of Hurricane Laura primarily for temporary power generation due to damage sustained by electric utilities that serve EnLink's facilities.
• Segment free cash flow for the third quarter of 2020 was $61 million, and Louisiana is expected to continue to generate strong segment free cash flow for the remainder of 2020.
• NGL fractionation volumes for the third quarter of 2020 were approximately 2% higher as compared to the second quarter of 2020 and 3% higher as compared to the third quarter of 2019.
• Average natural gas transportation volumes for the third quarter of 2020 were approximately 5% higher as compared to the second quarter of 2020 and approximately 6% lower as compared to the third quarter of 2019. Industrial demand remained strong despite the weak economic backdrop of the third quarter of 2020.
• Average crude volumes handled in EnLink's Ohio River Valley operations for the third quarter of 2020 were roughly flat as compared to the second quarter of 2020 and lower by approximately 26% as compared to the third quarter of 2019. Crude volumes were negatively impacted during the second and third quarters of 2020 as a result of the macro demand decline for crude oil impacting refinery activity in Ohio.

Oklahoma:

• Segment profit of approximately $108 million for the third quarter of 2020 was approximately 9% higher as compared to the second quarter of 2020 and largely flat as compared to the third quarter of 2019. The increase in segment profit for the third quarter of 2020 as compared to the second quarter of 2020 was due largely to cost reductions and the return of volumes, which were temporarily shut in or curtailed during the second quarter of 2020.
• Segment free cash flow for the third quarter of 2020 was $105 million, and Oklahoma is expected to continue to generate strong segment free cash flow for the remainder of 2020.
• Average natural gas gathering volumes for the third quarter of 2020 were approximately 2% higher as compared to the second quarter of 2020 and approximately 18% lower as compared to the third quarter of 2019. Average natural gas processing volumes for the third quarter of 2020 increased by approximately 4% and decreased by 15% when compared to the second quarter of 2020 and the third quarter of 2019, respectively. The increase in volumes during the third quarter of 2020 as compared to the second quarter of 2020 resulted from previously shut in and curtailed volumes being back online. The decrease in volumes during the third quarter of 2020 as compared to the third quarter of 2019 is a result of reduced producer activity in Oklahoma's STACK play.
• Average crude gathering volumes during the third quarter of 2020 were approximately 15% lower as compared to the second quarter of 2020 and approximately 57% lower as compared to the third quarter of 2019. Volume declines in the third quarter of 2020 as compared to the prior periods resulted from reduced activity by key producers supporting EnLink's crude gathering systems in Oklahoma's STACK play.

North Texas:

• Segment profit of approximately $67 million for the third quarter of 2020 decreased by approximately 3% as compared to the second quarter of 2020 and by approximately 4% as compared to the third quarter of 2019. Segment profit for the third quarter of 2020 as compared to prior periods was lower due to natural volumetric decline in the mature Barnett Shale play.
• Segment free cash flow for the third quarter of 2020 was $64 million, in line with segment free cash flow generated in the third quarter of 2019, and North Texas is expected to generate strong segment free cash flow for the remainder of 2020.
• Average natural gas gathering and transportation volumes for the third quarter of 2020 decreased by approximately 2% as compared to the second quarter of 2020 and decreased by approximately 12% as compared to the third quarter of 2019. Average natural gas processing volumes for the third quarter of 2020 were flat and down 12%, respectively, when compared to the second quarter of 2020 and the third quarter of 2019.

Common Unit Repurchase Program

EnLink's Board of Directors has authorized a common unit repurchase program (Unit Repurchase Program) for the repurchase of up to $100 million of EnLink's outstanding common units. The Unit Repurchase Program is effective immediately. Potential unit repurchases will be made in accordance with applicable securities laws from time to time in open market or private transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. Unit repurchases will depend on market conditions and may be discontinued at any time.

While there continues to be macro-driven uncertainty and volatility impacting the global energy industry, EnLink's business performance remains strong and resilient. EnLink expects free cash flow after distributions for full-year 2020 to exceed the high-end of the previously announced guidance range, in part due to EnLink's peer-leading cost reductions. In addition, EnLink recently executed a small, non-core asset sale, generating $20 million of aggregate proceeds in 2020 and 2021. The Unit Repurchase Program provides another available tool as EnLink pursues a balanced capital allocation approach, which prioritizes de-levering while valuing the generation of strong returns.