Press

Sanchez Midstream Partners Reports Fourth Quarter and Full Year 2017 Financial Results


HOUSTON, March 09, 2018 (GLOBE NEWSWIRE) -- Sanchez Midstream Partners LP (NYSE American:SNMP) (“SNMP” or the “Partnership”) today reported fourth quarter and full year 2017 results.  Highlights from the report include:

  • The Partnership reported net income of $0.3 million for the fourth quarter 2017, which compares to net income of $3.8 million for the third quarter 2017;

  • The Partnership reported Adjusted EBITDA (a non-GAAP financial measure) of $21.4 million for the fourth quarter 2017, up approximately 21 percent when compared to the third quarter 2017;

  • In February 2018, the Partnership declared and paid a fourth quarter 2017 cash distribution on common units of $0.4508 per unit ($1.8032 per unit annualized);

  • The Partnership's fourth quarter 2017 cash available for distribution (a non-GAAP financial measure) was $9.9 million, resulting in a distribution coverage ratio of 1.5 times; and

  • After completing an extensive capital program, which resulted in the commercial in-service of the Raptor Gas Processing Facility and SECO Pipeline in 2017, the Partnership intends to use excess cash flow to reduce debt, further improve its balance sheet, and internally finance growth.

MANAGEMENT COMMENTARY
“After years of planning, focused investment, and the strategic divestiture of non-core producing assets, we successfully completed the transformation of SNMP to a midstream master limited partnership in 2017,” said Gerry Willinger, Chief Executive Officer of the general partner of SNMP.  “As part of this transformation, we completed an extensive capital program, improved our existing asset base, completed and expanded the Raptor Gas Processing Facility, developed the SECO Pipeline, and positioned the Partnership to achieve free cash flow heading into 2018. 

“The Raptor Gas Processing Facility, a joint venture that is 50 percent owned and operated by Targa Resources Corp. (“Targa”), began commercial operations in June 2017with 200 million cubic feet equivalent per day (“MMcfe/d”) of processing capacity, and was expanded in the third quarter 2017 to capacity of 260 MMcfe/d.  We developed our wholly owned SECO Pipeline on a parallel path with the completion of the Raptor Gas Processing Facility. The SECO Pipeline was brought on-line in August 2017, and connects to the Raptor Gas Processing Facility, providing 400 MMcfe/d of capacity to transport dry gas to multiple markets in South Texas.  These assets, together with Western Catarina Midstream and the Carnero Gathering Pipeline, a joint venture with Targa that feeds the Raptor Gas Processing Facility, form the basis of our midstream strategy in South Texasand provide stable, fee-based cash flow to support our continued growth.

“As we look to expand our strategic position in South Texas, we have made a concerted effort to reduce the Partnership's exposure to production activities which, by their nature, are sensitive to commodity prices and are less suited for our business model going forward.  To that end, we closed the sale of our remaining operated Oklahoma production assets in July 2017 for approximately $5.5 million.  More recently, in November 2017, we closed the sale of certain non-operated production assets in Texasfor approximately $6.3 million.  We intend to pursue additional strategic divestitures of producing assets, with an eye toward continuing to expand the contribution of our fee-based, midstream activities.

“With the completion of the Raptor Gas Processing Facility and SECO Pipeline, our fourth quarter 2017 Adjusted EBITDA more than doubled when compared to Adjusted EBITDA for the first quarter 2017.  As a result, our cash available for distribution in the fourth quarter 2017 was approximately $9.9 million, which covered our distribution on common units by 1.5 times.   

“Importantly, although our total capital spending in 2018 is expected to be considerably lower when compared to 2017, we continue to see opportunities for cash flow growth this year.  Our South Texas midstream assets are strategically positioned to capture upside from the development activity of Sanchez Energy Corporation (NYSE:SN) at Comanche and Catarina, and we anticipate increasing volumes through our facilities in 2018 and the years to come.

“Having posted eight consecutive quarters of distribution growth, we elected this quarter to hold our distribution flat at $0.4508 per common unit.  This decision, which we did not take lightly, comes as the capital markets increasingly favor coverage and balance sheet strength over growth.  As a result, it is apparent that the capital markets are not rewarding the Partnership for its current distribution stream, let alone increases in our quarterly distribution.  As evidenced by our distribution coverage ratio, we believe we have sufficient cash flow to consider distribution increases in the future.  However, until such time that the capital markets become less restrictive, we believe it is more prudent to use excess cash flow to reduce debt, further improve the Partnership's balance sheet, and internally finance growth.”   

FINANCIAL RESULTS
The Partnership's revenue totaled $18.7 million during the fourth quarter 2017.  Included in total revenue for the fourth quarter 2017 is $16.2 million from the midstream activities of Western Catarina Midstream and the SECO Pipeline and $6.1 million from production activities.  The balance of the Partnership's fourth quarter 2017 total revenue came from hedge settlements ($0.4 million) and a loss on mark-to-market activities ($4.0 million), which is a non-cash item. 

The Partnership's revenue for the full year 2017 totaled $88.1 million.  Included in total revenue for the full year is $55.8 million from the midstream activities of Western Catarina Midstream and the SECO Pipeline and $28.4 million from production activities.  The balance of the Partnership's total revenue for the full year came from hedge settlements ($9.1 million net, which includes a $3.6 million gain related to the August 2017 hedge repositioning) and a loss on mark-to-market activities ($5.2 million), which is a non-cash item. 

Earnings from the Partnership's midstream joint ventures with Targa totaled $3.5 millionin the fourth quarter 2017 and $7.9 million for the full year 2017.

On a GAAP basis, the Partnership recorded net income of $0.3 million for the fourth quarter 2017, which compares to net income of $3.8 million for the third quarter 2017 and a net loss of $12.9 million in the fourth quarter 2016. The Partnership reported a net loss of $3.0 million for the full year 2017, which compares to net income of $19.2 millionfor the full year 2016. 

Adjusted EBITDA (a non-GAAP financial measure) for the fourth quarter 2017 was approximately $21.4 million, which is up approximately 21 percent when compared to the third quarter 2017 Adjusted EBITDA of $17.8 million.  For the full year 2017, the Partnership reported Adjusted EBITDA of $65.0 million which is 17 percent higher when compared to full year 2016 Adjusted EBITDA of $55.4 million.  The Partnership's calculation of Adjusted EBITDA is discussed in further detail below.

LIQUIDITY UPDATE
As of Dec. 31, 2017, the Partnership had $189 million in debt outstanding under its credit facility, which has a current borrowing base of $249.3 million and an elected commitment amount of $200 million.  The midstream portion of the borrowing base is approximately $211 million, which results in the Partnership's midstream collateral more than covering the $200 million elected commitment amount.  

The Partnership had approximately $0.3 million in cash and cash equivalents as of Dec. 31, 2017. 

HEDGE UPDATE
For the full year 2018, the Partnership has hedged approximately 0.5 billion cubic feet of its natural gas production at an effective NYMEX fixed price of approximately $3.00 per million British thermal units and approximately 260 thousand barrels of its crude oil production at an effective NYMEX fixed price of approximately $59.74 per barrel.  The Partnership has additional hedges covering a portion of its production in 2019 through 2020.  More information on the Partnership's hedge positions can be found in the SNMP Investor Presentation posted at www.sanchezmidstream.com.

COMMON UNITS
The Partnership had 14,965,134 common units issued and outstanding as of March 6, 2018.

DISTRIBUTIONS
On Feb. 8, 2018, the Partnership declared a fourth quarter 2017 cash distribution on its common units of $0.4508 per unit ($1.8032 per unit annualized).  The Partnership also declared a fourth quarter 2017 distribution to the holders of its Class B preferred units equal to $0.28225 per Class B preferred unit. 

Based on fourth quarter 2017 Adjusted EBITDA of $21.4 million, cash interest expense of $2.9 million, maintenance capital of $0.6 million, and $8.8 million in preferred distributions, the Partnership generated approximately $9.9 million in cash available for distribution (a non-GAAP financial measure) during the fourth quarter 2017, resulting in a distribution coverage ratio of 1.5 times. 



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