DALLAS, May 4, 2021 — EnLink Midstream, LLC (NYSE: ENLC) (EnLink) reported financial results for the first quarter of 2021 and reaffirmed 2021 financial guidance.
Reported net income of $12.6 million, net cash provided by operating activities of $225.8 million, and adjusted EBITDA, net to EnLink, of $249.4 million for the first quarter of 2021, driven by strong operational execution and a continued focus on cost reductions.
Winter Storm Uri temporarily impacted volumes across EnLink’s asset footprint giving rise to commercial challenges offset by operational savings. On a net basis, it is estimated that Winter Storm Uri did not have a material impact to first quarter of 2021 results. All systems have resumed normal operations and suffered no lasting integrity impact.
With strong first quarter results, EnLink is positioned to meet its full-year 2021 adjusted EBITDA guidance range of $940 million to $1.0 billion.
The Permian segment continued to see robust producer activity during the first quarter of 2021, particularly in the Midland Basin, although segment profit was adversely impacted by Uri. March 2021 gas gathering and transportation volumes increased by over 12% compared to both December 2020 and January 2021.
All four of EnLink’s business segments continued to generate strong segment cash flow (segment profit less capex) during the first quarter of 2021.
As a result of strong operational results and timing of capex, EnLink delivered $94.2 million of free cash flow after distributions (FCFAD) for the first quarter of 2021. EnLink is positioned to meet its 2021 FCFAD guidance of $275 million to $325 million.
EnLink reduced bank debt by $100 million and modestly increased its cash position.
On April 30, 2021, EnLink purchased Amarillo Rattler, the owner of a gathering and processing system in the Midland Basin. In connection with the purchase, EnLink entered into an amended and restated gas gathering and processing agreement with Diamondback Energy strengthening EnLink’s acreage dedication position.
“We are pleased with the results that EnLink achieved in the first quarter, made possible by the relentless hard work of the EnLink team working around the clock to minimize the impact from Winter Storm Uri,” said Barry E. Davis, EnLink Chairman and CEO. “We are thankful for our employees who continue to execute our strategic plan, and, because of their hard work, all of our business segments generated strong cash flow, putting us on a path to achieve our previously announced guidance.
“After a 2020 that showed the resiliency of our business, we are continuing to focus on generating strong free cash flow, prudently managing our balance sheet, and growing the business. We see 2021 and beyond as an opportunity to transform how we operate and to get better, more efficient, and more sustainable. I look forward to sharing how EnLink is becoming the future of midstream through the execution of our strategic plan.”
Adjusted EBITDA, segment cash flow, and free cash flow after distributions used in this press release are non-GAAP measures and are explained in greater detail under “Non-GAAP Financial Information” below.
Winter Storm Uri Impact
Winter Storm Uri had a similar impact on EnLink as that experienced across the midstream industry with a temporary, but significant, decrease to the volumes across EnLink’s geographically diverse asset footprint. The severe cold temperatures caused production freeze-offs and led some producers to proactively shut in their wells. This reduced production flow lasted approximately 10 days, during which EnLink saw peak volume declines range between 44% and 92%, depending on the region. However, thanks to the extraordinary efforts of our employees, EnLink did not experience any asset integrity issues or safety incidents during this period, and system volumes have returned to pre-Uri levels.
The extreme weather created a number of challenges that adversely impacted the first quarter. As a result of the temporary reduction in gathered and processed volumes, EnLink suffered marketing-related losses, including losses on derivative contracts and losses related to firm commodity sales agreements.
EnLink’s employees worked diligently during the extreme weather to minimize the negative impacts on our business, to ensure customer needs were met to the extent possible, and to reduce the duration of the operational disruption.
In spite of these challenges, EnLink’s resilient assets and focus on operational excellence helped to create offsetting operational savings. EnLink was able to make limited incremental gas sales to support local markets in less operationally affected regions and to use its storage capacity in Louisiana, including at the new Jefferson Island Storage Hub (JISH) facility, to help offset lower gas and NGL supply. Additionally, because of forced outages at facilities and elevated power prices, EnLink received approximately $40 million in credits for unused electricity which had been purchased on a firm basis. These credits may be used to offset future electricity costs. On a net basis, it is estimated Winter Storm Uri did not have a material impact to the first quarter of 2021 results.
The effects of Winter Storm Uri on our industry are far ranging and industrywide litigation and billing disputes arising out of the storm will take time to resolve. As a result, EnLink may be subject to additional financial impact in future quarters.
First Quarter 2021 Segment Updates
Segment profit of $42.8 million for the first quarter of 2021 was 7% lower with the fourth quarter of 2020 and in line with the first quarter of 2020. EnLink experienced temporary volume declines during Winter Storm Uri with resulting losses on derivative contracts and firm commodity sales agreements. These were partially offset by credits for unused electricity that resulted from forced outages at facilities during Uri. Exclusive of the impact of Winter Storm Uri, strong results for the first quarter of 2021 were driven primarily by producer activity and continued cost optimization efforts.
The first quarter of 2021 marked the third consecutive quarter of positive segment cash flow with $29.5 million being generated. Capital expenditures, including operating expenses related to Project War Horse, are projected to moderately increase in the middle of 2021 due to spending on Project War Horse, the relocation of a processing plant from Oklahoma to the Midland Basin, as well as producer activity. The Permian is expected to continue to generate strong segment cash flow for the remainder of 2021.
Average natural gas gathering volumes for the first quarter of 2021 were approximately 1% lower as compared to the fourth quarter of 2020 and approximately 11% higher as compared to the first quarter of 2020. Average natural gas processing volumes for the first quarter of 2021 decreased approximately 3% compared to the prior quarter and were 2% higher as compared to the first quarter of 2020.
March 2021 gas gathering and processing volumes increased 12.4% and 6.9%, respectively, over December 2020 volumes.
Average crude gathering volumes decreased by approximately 10% for the first quarter of 2021 as compared to the fourth quarter of 2020 due to timing of producer completion activity.
Segment profit of $82.2 million for the first quarter of 2021 was 2% higher as compared to the fourth quarter of 2021 and approximately 9% higher as compared to the first quarter of 2020. Increases in segment profit were driven by favorable NGL prices, the inception of the Venture Global transportation agreement, and contributions from JISH.
Segment cash flow for the first quarter of 2021 was $79.4 million, and Louisiana is expected to continue to generate strong segment cash flow for the remainder of 2021.
Average natural gas transportation volumes for the first quarter of 2021 were approximately 3% higher as compared to the fourth quarter of 2020 and approximately 5% higher as compared to the first quarter of 2020. Volumes in the first quarter benefited from the recent acquisition of JISH.
NGL fractionation volumes for the first quarter of 2021 were approximately 4% lower as compared to the fourth quarter of 2020, negatively impacted by Winter Storm Uri.
Average crude volumes handled in EnLink’s Ohio River Valley operations for the first quarter of 2021 were lower by approximately 14% as compared to the first quarter of 2020 due to lower overall levels of activity in the region.
Segment profit of $55.5 million for the first quarter of 2021 was approximately 26% lower as compared to the fourth quarter of 2020, excluding the $17.3 million impact from the expiration of a minimum volume commitment in the fourth quarter. Segment profit was also adversely impacted by lower volume, as a result of Winter Storm Uri.
Segment cash flow for the first quarter of 2021 was $53.6 million, and Oklahoma is expected to continue to generate strong segment cash flow for the remainder of 2021.
Average natural gas gathering volumes for the first quarter of 2021 were approximately 10% lower as compared to the fourth quarter of 2020. Average natural gas processing volumes for the first quarter of 2021 decreased by approximately 10% when compared to the fourth quarter of 2020.
The Devon and Dow Inc. joint venture began Phase 1 of its development plan, operating two rigs during the first quarter of 2021 with first volumes expected in the second half of 2021.
Average crude gathering volumes during the first quarter of 2021 were approximately 23% lower as compared to the fourth quarter of 2020.
Segment profit of $76.9 million for the first quarter of 2021 increased by approximately 25% as compared to the fourth quarter of 2020. While volumes were negatively impacted by Winter Storm Uri, the segment was able to support the local market during the storm with incremental gas sales.
Segment cash flow for the first quarter of 2021 was $74.5 million. North Texas is expected to generate strong segment cash flow for the remainder of 2021.
Average natural gas gathering and transportation volumes for the first quarter of 2021 decreased by approximately 3% as compared to the fourth quarter of 2020. Average natural gas processing volumes for the first quarter of 2021 were down 3% when compared to the fourth quarter of 2020.
BKV and other operators continued to focus on production optimization through re-stimulation activity in the basin.
Amarillo Rattler Acquisition
On April 30, 2021, EnLink purchased Amarillo Rattler, the owner of a gathering and processing system located in the Midland Basin, which represents a great example of EnLink’s opportunistic tuck-in acquisition strategy. In connection with the purchase, EnLink entered into an amended and restated gas gathering and processing agreement with Diamondback Energy, strengthening EnLink’s dedicated acreage position and deepening its relationship with Diamondback Energy. EnLink acquired the system for $60 million (including $10 million to be paid in 2022) and an earnout capped at $15 million based on Diamondback Energy drilling activity above historical levels. At 6x 2022E EBITDA, the purchase price represents attractive economics relative to historical multiples in the Permian, partially driven by significant operating synergies, and improving over time as Diamondback Energy develops the acreage. In addition, the acquisition is anticipated to be modestly accretive to FCFAD in FY21.
Emissions Targets and Third Sustainability Report
EnLink will announce via a separate press release today its intention to reach net zero greenhouse gas emissions by 2050, positioning the company among industry leaders in sustainability. EnLink plans to execute substantial emissions reduction strategies along the way that will systematically move the company toward its net zero goal, including achieving a 30% reduction in methane emissions intensity by 2024 and a path to reach a 30% reduction in total carbon dioxide equivalent emissions intensity levels by 2030, both as compared to 2020 levels. The company’s environmental commitment is further evidenced by its joining, in March 2021, of The Environmental Partnership, an industry organization focused on emissions reduction solutions. EnLink’s emissions commitments and environmental management strategies are detailed in its third annual sustainability report, issued today at http://sustainability.enlink.com. Additionally, the report highlights 2020 governance and social responsibility achievements.
First Quarter 2021 Earnings Call Details
EnLink will hold a conference call to discuss first quarter 2021 results on May 5, 2021, at 8 a.m. Central time (9 a.m. Eastern time). The dial-in number for the call is 1-855-656-0924. Callers outside the United States should dial 1-412-542-4172. Participants can also preregister for the conference call by navigating to https://dpregister.com/sreg/10155412/e74e6c8014 where they will receive dial-in information upon completion of preregistration. Interested parties can access an archived replay of the call on the Investors’ page of EnLink’s website at EnLink.com.
About EnLink Midstream
EnLink Midstream reliably operates a differentiated midstream platform that is built for long-term, sustainable value creation. EnLink’s best-in-class services span the midstream value chain, providing natural gas, crude oil, condensate, and NGL capabilities. Our purposely built, integrated asset platforms are in premier production basins and core demand centers, including the Permian Basin, Oklahoma, North Texas, and the Gulf Coast. EnLink’s strong financial foundation and commitment to execution excellence drive competitive returns and value for our employees, customers, and investors. Headquartered in Dallas, EnLink is publicly traded through EnLink Midstream, LLC (NYSE: ENLC). Visit www.EnLink.com to learn how EnLink connects energy to life.
Non-GAAP Financial Information
This press release contains non-generally accepted accounting principles financial measures that we refer to as adjusted EBITDA, free cash flow after distributions, and segment cash flow.
We define adjusted EBITDA as net income (loss) plus (less) interest expense, net of interest income; depreciation and amortization; impairments; (income) loss from unconsolidated affiliate investments; distributions from unconsolidated affiliate investments; (gain) loss on extinguishment of debt; unit-based compensation; income tax expense (benefit); unrealized (gain) loss on commodity swaps; relocation costs associated with the War Horse processing facility; (gain) loss on disposition of assets; accretion expense associated with asset retirement obligations; (non-cash rent); and (non-controlling interest share of adjusted EBITDA from joint ventures).
We define free cash flow after distributions as adjusted EBITDA, net to ENLC, plus (less) (growth capital expenditures, excluding capital expenditures that were contributed by other entities and relate to the non-controlling interest share of our consolidated entities); (maintenance capital expenditures, excluding capital expenditures that were contributed by other entities and relate to the non-controlling interest share of our consolidated entities); (interest expense, net of interest income); (distributions declared on common units); (accrued cash distributions on Series B Preferred Units and Series C Preferred Units paid or expected to be paid); (relocation costs associated with the War Horse processing facility); (payments to terminate interest rate swaps); non-cash interest (income)/expense; (current income taxes); and proceeds from the sale of equipment and land.
Segment Cash Flow is defined as segment profit less growth and maintenance capital expenditures, which are gross to EnLink prior to giving effect to the contributions by other entities related to the non-controlling interest share of our consolidated entities.
EnLink believes these measures are useful to investors because they may provide users of this financial information with meaningful comparisons between current results and previously-reported results and a meaningful measure of the company’s cash flow after it has satisfied the capital and related requirements of its operations. In addition, adjusted EBITDA and free cash flow after distributions are both used as metrics in our short-term incentive program for compensating employees.
Adjusted EBITDA, free cash flow after distributions, and segment cash flow, as defined above, are not measures of financial performance or liquidity under GAAP. They should not be considered in isolation or as an indicator of EnLink’s performance. Furthermore, they should not be seen as a substitute for metrics prepared in accordance with GAAP. Reconciliations of these measures to their most directly comparable GAAP measures are included in the following tables. See ENLC’s filings with the Securities and Exchange Commission for more information.
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