Prepared remarks
Thank you for standing by, and welcome to the Summit Midstream First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-1 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star-1 again. As a reminder, today's program is being recorded. And now I would like to introduce your host of today's program, Randall Burton, Treasurer and Investor Relations. Please go ahead, sir.
Thanks, operator, and good morning, everyone. If you do not already have a copy of our earnings release, please visit our website at summitmidstream.com. You will find it on the homepage, events and presentations section or the quarterly results section. With me today to discuss our first quarter 2026 financial and operating results is J. Heath Deneke, our President, Chief Executive Officer, and Chairman; William J. Mault, our Chief Financial Officer; and Christopher H. Tennant, our Chief Commercial Officer, along with other members of our senior management team. Before we start, I would like to remind you that our discussion today may contain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses, and capital expenditures. It may also include statements concerning anticipated cash flow, liquidity, business strategy, and other plans and objectives for future operations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see Summit Midstream Corp.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, which the company filed with the SEC on March 16, 2026, as well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results. Also note that on this call, we use the terms EBITDA, adjusted EBITDA, distributable cash flow, and free cash flow. These are non-GAAP financial measures; we provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release. And with that, I will turn the call over to Heath.
Thanks, Randall, and good morning, everyone. Summit reported first quarter 2026 adjusted EBITDA of $54.2 million, which was generally in line with expectations despite lower volumes and realized residue gas prices in the Arkoma. The underperformance in the Mid-Con segment was partially offset by gains in the Rockies segment driven by higher-than-budgeted crude oil. So based on the current activity levels, the recent well performance and our visibility in the second half of the year, we continue to expect results to trend toward the midpoint of our original 2026 adjusted EBITDA guidance of $225 million to $265 million. Before I get into the operational highlights, I wanted to spend a moment on the macro picture, which we see becoming increasingly constructive for Summit. Crude oil prices are obviously much higher than the lows we saw earlier this year, and for a business like ours, where roughly 80% of our well connects in 2026 are expected in crude oil-oriented basins, a more constructive crude environment translates directly into improved producer economics and an incentive to accelerate and increase activity levels. Some of our Rockies customers have communicated that they are actively working on plans to attempt to accelerate activity into 2026 and increase overall activity levels in 2027. We are also seeing benefits from higher crude oil pricing on our field condensate sales and our optimization activities in the Rockies segment. At the same time, the natural gas outlook remains favorable as well. Henry Hub has remained constructive. LNG export demand continues to grow rapidly. And the long-term demand outlook from data center growth and electrification is increasingly supportive of the natural gas infrastructure we operate in our Mid-Con and Permian segments. For our Mid-Con segment, there is a great backdrop to see activity levels pick up in the coming years in both the Arkoma and the Barnett. These assets are very well positioned on the natural gas pipeline grid to feed LNG and power markets along the Gulf Coast. The macro outlook is also very supportive of increasing demand for our Double E gas pipeline in the Permian that transports residue gas from multiple processing facilities throughout the core of the Delaware Basin to the Waha hub, which then connects to more than 20 Bcf/d of eastbound gas infrastructure that serves the East Texas and Louisiana Gulf Coast markets. Turning to operations, we connected 307 wells during the quarter, including the first four Williston wells under the new 10-year crude gathering agreement that we announced last quarter in Divide County. Early production results from those wells have been encouraging. In Arkoma, while we did experience lower-than-expected well performance from two pads during the quarter, which was the primary driver of the volume underperformance in that segment, both of these pads were drilled in the outer edges of our dedicated acreage footprint in an attempt to further extend the boundaries of proven but undeveloped locations in the Caney/ Woodford formations. Recently, though, we have brought on a new three-well pad in the dry gas area of our Arkoma system and we are seeing these wells significantly outperform our internal expectations. These three wells continue to ramp up, but have already averaged approximately 50 million cubic feet per day combined over the past couple of days since being turned in line, which is very encouraging and it really gets us excited about future growth in the Mid-Con segment. We currently have five rigs running behind the system with approximately 80 drilled but uncompleted wells, and we expect approximately 40 new well-connects in the second quarter, including 20 in the Mid-Con segment. That second-quarter activity and well results from some of the wells already connected in the second quarter sets up a very meaningful volume increase as we move into the back half of the year. Subsequent to the quarter end, we executed another 10-year take-or-pay precedent agreement for 100 million cubic feet per day of firm capacity on the Double E system, which is slated to start in 2027. That brings our total contracted volumes on Double E to just over 1.7 Bcf/d. And we continue to build momentum in our ongoing open season to secure additional commitments to support the previously announced 800 million cubic feet per day midpoint compressor expansion project. Given the market interest that we have seen thus far, we remain very optimistic about securing additional contracts that are necessary to help make a final investment decision on the project this summer. We also made meaningful progress to further simplify and improve the balance sheet this quarter. We were paid all $45 million of accrued Series A preferred stock dividends, which clears a key milestone on the path to reinstate a common dividend. We completed a $42 million private placement of common stock to an affiliate of Tailwater Capital, our largest shareholder, which will help us fund high-return organic growth projects across our operating footprint. And finally, we closed the Summit Permian Transmission term loan refinancing which provides the financial flexibility to fund Double E capital growth while we continue to delever Summit's corporate balance sheet. So with that update, let me turn it over to Bill to walk through the details on the financials.
Thanks, Heath, and good morning, everyone. Summit reported first quarter 2026 adjusted EBITDA of $54.2 million, distributable cash flow of $26.9 million and free cash flow of $11.4 million. Total capital expenditures were $19.3 million for the quarter, inclusive of $3.7 million of maintenance capital, with the majority of the growth capital directed towards pad connections in the Rockies and Mid-Con segments. With respect to Summit's balance sheet, we ended the quarter with $43.4 million of unrestricted cash and $116 million drawn on our revolving credit facility, with approximately $381 million of available borrowing capacity after accounting for $2.7 million of undrawn letters of credit. Now moving on to the segments. The Rockies segment generated adjusted EBITDA of $26.4 million, a decrease of $1.5 million relative to the prior year period primarily due to a $1.2 million non-cash imbalance, a 3% reduction in liquids volumes, lower realized residue gas prices on our percentage-of-proceeds contracts, and lower fresh water sales. This was partially offset by a 4.4% increase in natural gas volume throughput and improving crude oil and NGL prices that really started in March 2026. We connected 18 wells in the DJ Basin and 13 in the Williston, including the first four 3-mile lateral wells under the new crude gathering agreement that we announced last quarter. Five rigs are currently running with approximately 60 DUCs behind the systems, and several customers are working to try to accelerate their programs given the improved crude oil price environment. The Permian segment reported adjusted EBITDA of $8.7 million, flat relative to the prior year period, and Double E volumes averaged 805 million cubic feet per day during the quarter. The Piceance segment reported adjusted EBITDA of $9.6 million, down $0.4 million from the prior quarter, primarily driven by volume throughput declines of approximately 7.3%, which included 8 million cubic feet per day of temporary shut-ins as well as natural production declines, with no new wells connected during the quarter. Customers currently have approximately 20 million cubic feet per day of volume shut in as a result of low regional gas prices, primarily in the White River hub, and based on current forward prices in the region, we would expect that production to resume beginning in 2026. Finally, the Mid-Con segment reported adjusted EBITDA of $19.3 million, a decrease of $2.1 million from the prior quarter, primarily driven by natural production declines, partially offset by six new Arkoma well connections during the quarter. Three additional Arkoma wells were connected subsequent to quarter-end, and we have 17 Barnett DUCs expected to come online in the second quarter. We expect second-quarter activity and recently connected wells to drive an increase in Mid-Con volumes as we move throughout the remainder of the year. And with that, I will turn the call back over to Heath for closing remarks.
Thanks, Bill. So to summarize, we are still tracking toward the $245 million midpoint of our EBITDA guidance for 2026, and we continue to see a lot of momentum building across the portfolio in response to the improving commodity price outlook. We remain excited about the growth outlook for the business and believe the current macro outlook supports more than $100 million of organic EBITDA growth from our existing portfolio by 2030. We continue to be active on the M&A front evaluating opportunities that could further scale up the business in a value- and credit-accretive manner. We have also taken meaningful steps to further simplify and improve the balance sheet by cleaning up the accrued preferred dividends, completing the Tailwater common stock placement, and closing the Permian transmission refinancing to score Double E growth. And finally, as we execute the business plan, we continue to have a line of sight on achieving our long-term 3.5x leverage target and being in a position to reinstate a common dividend in the near future. We believe there is a pretty simple and achievable path forward to drive a lot of shareholder value in the coming years. We are excited to get out on the road in the coming weeks as a management team to continue to tell the Summit story and continue to build momentum with investors. So with that, I would like to thank everyone again for joining the call today and supporting the business. Operator, I think we can open up the call for questions now.
Questions and answers
Certainly. And as a reminder, if you do have a question at this time, please press star-1. Our first question comes from the line of Mark Reichman from Noble Capital. Mark, your question, please.
Yes. Would you please discuss the competitive positioning of the Double E pipeline? Are you seeing increasing demand for incremental takeaway capacity tied to LNG export growth and could Double E ultimately require additional expansion phases beyond what is currently contemplated?
Yeah, you bet, Mark. This is Heath. As far as competitive position, I think Double E is in pretty good shape on that front. If you look at what has occurred with the build-out of the Delaware in terms of rig activity and where we have really seen volumes grow, they kind of started in Texas and migrated up to New Mexico. The vast majority of the other pipelines that we compete with have really filled up their existing takeaway capacity. In many cases, they have passed the cheap, easy-to-expand compression-type projects and for them to materially expand capacity they are looking at laying brand-new greenfield pipe or big loops to their system to get additional capacity. I think we are well positioned, having recently filled up our latent free-flow capacity. This expansion that we are in the midst of, on an open season, is intended to add another 800 to 900 million cubic feet per day of capacity. We believe we are one of the only options that can be available by 2028 to meet a lot of this incremental residue gas growth that we see in the Permian Basin. So we feel strongly about that. Looking at our rates relative to other tariffs, we are certainly at market rates with what we sell our capacity for on Double E. What gives us the advantage is the low-cost expandability that we still have remaining on the pipe, the ability to bring that to market in fairly short order, and the emerging demand dynamics on the northern end of our system. On the LNG point, there is no doubt that LNG has been a primary catalyst for new infrastructure development. There is a large amount of infrastructure built and being built to move gas from Waha and East Texas to feed the LNG facilities in Texas and Louisiana. There is over 20 Bcf/d of capacity that originates from that Waha area and has access to those growing markets. That has clearly been a near-term catalyst. What has been interesting to watch, particularly on Double E, is that the market is getting somewhat diversified. A number of projects are developing to move gas west into the Desert Southwest to serve incremental power generation demand. We have also seen additional markets pointed toward the Midcontinent and up into the Midwest attract interest from shippers to diversify their market access on the north end of our system. Thematically, we are seeing roughly 6 to 7 Bcf/d of incremental supply growth over the next three to five years, and a lot of new projects are being announced to distribute that gas to the right market points. To your question about whether we are done after the current expansion, the short answer is no. As markets develop on the northern end of our system, we will have a lot of backhaul capacity to move gas potentially from Waha or other processing plants located south of that. That may not require much additional build-out; it could be achieved by making compressor stations bidirectional or making modest additions that allow flows to be directed north or south as market dynamics dictate. There are also markets developing around our pipe. We are in discussions with multiple data center and power generation customers that are looking to take advantage of the relatively low gas price in the Permian Basin and are in close proximity to our system. So while the majority of our customers today are supply-push — producers, gathering and processing companies — we could start to see demand-side customers pay to have us expand the system to reach multiple processing plants or hubs. We really like how this asset is positioned. We have articulated that we see Double E's EBITDA growing from roughly $35 million up to the mid-$60 millions with what we have contracted to date, and with the announced expansion that could grow up to about $90 million. Beyond that, we see ample room for continued EBITDA growth over the next several years.
Well, that is very helpful. Now how sustainable is Rockies throughput growth over the next several quarters? And what level of producer activity are you seeing in the DJ and Williston Basins? On that, could you discuss the commodity mix and margin profile of the Rockies?
Yeah. I will let Bill handle the details. There is a lot of momentum in both segments with the improving crude strip. We have seen producers in some cases look to pick up additional rigs, and we have seen additional wells get scheduled into the back half of 2026. Bill, why don't you fill them in on some of the details?
Good morning, Mark. A couple of things are going on, and I will start in the DJ. There is a large integrated public shipper in the DJ that is a customer of ours. We actually have 16 wells expected to come online from them here in the second quarter. That is really just the start of a broader program over the next two to three years that they intend to execute. That is one we've talked about in the past that is starting to come to fruition here in Q2. There are also a lot of large private operators in the DJ that have been drilling behind our Hereford Ranch processing plant. We have seen outlooks from them that could fill up that processing plant. They are picking up a second rig in the basin, which I think dovetails with the supportive commodity price environment and their desire to take advantage of it. The other operator I would mention is Peoria Resources, which acquired Verdad a few months ago. That transaction created a bit of a stall in activity for them in 2026, which we have mentioned previously, but given the environment, I would expect them to pick back up activity late 2026 into 2027, which we are not fully getting the benefit of in 2026. Up in North Dakota, we have several customers trying to figure out how to accelerate development. That takes coordination of completion crews and execution, but there is a push from several customers to try to accelerate timing. In the third quarter, we have a customer that has been somewhat inactive behind our acreage in North Dakota over the past couple of years and they are bringing on a pad focused on crude oil and produced water gathering services we provide them. The first set of wells is coming on in the third quarter, and we have had conversations with them about additional activity in 2027. As you know, with the crude and water cuts there, those pads can be meaningful for volumetric growth behind the system, so we're excited to see that upcoming. As it relates to margin profile, you should think about roughly 35% of the Rockies product value being commodity-price exposed, and that is primarily our percentage-of-proceeds contracts in the DJ as well as condensate that falls off our system and our compressor stations. Breaking that down further, roughly 75% of that commodity-exposed component comes from NGLs and crude, and residue represents the remaining 25% of that product margin breakdown.
And Mark, just one thing to add to what Bill was talking about with the Rockies. Clearly, the Rockies and the Permian are going to be the two largest drivers of growth for us in the out years. As we've discussed and provided in some of our investment materials, we see roughly upwards of $100 million of EBITDA growth organically from 2025 into the 2030 timeframe. If you think about what that means for the Rockies, the signs Bill articulated are encouraging and may even accelerate the ramp compared to what we previously contemplated. You can see the Rockies growing from roughly around $85 million of contribution today to upwards of $160 million through 2030. So there is a substantial amount of growth there, and we may be seeing early signs that the ramp could be accelerated.
Yeah.
Jumping in on that, Heath. This is Christopher Tennant. We are having conversations with all of our major customers in those areas, really thinking about the next cycle of growth and the infrastructure needed to plan accordingly. That gives us a lot of confidence when we look forward in those areas.
Now are there any bolt-on acquisition opportunities in your operating regions, particularly the Rockies and Permian where you are seeing the stronger operational momentum?
Yeah. Certainly. I would say the Rockies is probably where we see the most near-term opportunities. There is still a fair amount of privately owned, privately backed systems that need to find a liquidity or exit point fairly soon. We are pretty active identifying and having conversations around some of those assets. You should think of those fitting the historical profile that we've executed over the past three years — generally purchase multiples in the range of 5x to 7x on an LTM basis. Those are at accretive levels where we would be able to capture accretion from both a value and leverage perspective in the out years. The Permian is a little different. There are some larger opportunities there that we are looking at, and those typically are north of the Rockies-sized transactions — maybe closer to the $150 million to $200 million EBITDA range. Not completely out of reach, but they are more complex and take longer to execute. Near term, we're more focused on Rockies opportunities at this point.
And then my last question is just what are the remaining plans and objectives in your broader capital structure optimization strategy? And how do you prioritize capital allocation between debt reduction, organic growth, acquisitions and return of capital to shareholders?
Yes, Mark. Over the next couple of years, one thing we have discussed, particularly with the refinancing of the Double E last quarter, is that we set that up so that around the 2028 time frame we have flexibility to clean that up and bring it onto the balance sheet in the recourse borrower group. That is probably the next item on the list. As we sit here today, we have been prioritizing post-growth capital free cash flow toward debt repayment to get to our long-term leverage target of 3.5x. So you should expect us to prioritize deleveraging until we reach that target. It is a balancing act with M&A and organic growth. Many of our organic growth projects are commanding very attractive unlevered rates of return, in the range of 20% to 30%-plus, which are obviously attractive. If we have opportunities that meet our return thresholds on the organic side, we would make the long-term decision to reinvest in growth to the extent additional opportunities arise.
That is great. That is very helpful. Thank you very much.
Thank you, Mark.
As a reminder, ladies and gentlemen, if you do have a question at this time, please press star-1 on your telephone. This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. Have a good day.