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Sanchez Midstream Partners Reports Third Quarter 2018 Financial Results; Declares New Cash Distribution


Sanchez Midstream Partners LP (NYSE American: SNMP) (“SNMP” or the “Partnership”) has reported third quarter 2018 results.  Highlights include:

  • Net income of $0.4 million for third quarter 2018, which compares to a net loss of $1.8 million for second quarter 2018 and net income of $3.8 million for third quarter 2017;

  • Adjusted EBITDA (a non-GAAP financial measure) of $18.4 million for third quarter 2018, which compares to Adjusted EBITDA of $17.6 million for second quarter 2018 and $17.8 million for third quarter 2017, respectively;

  • A third quarter 2018 cash distribution on common units of $0.15 per unit ($0.60 per unit annualized), which is payable Nov. 30, 2018; and

  • Cash available for distribution (a non-GAAP financial measure) of approximately $6.6 million, resulting in a distribution coverage ratio of 2.7 times.

MANAGEMENT COMMENTARY
“We continue to successfully execute our 2018 plan,” said Gerry Willinger, Chief Executive Officer of the general partner of SNMP.  “While the Partnership saw lower than expected volumes on our midstream systems during third quarter 2018, we are aware that Sanchez Energy Corporation has undertaken a number of key initiatives to improve operations and capital efficiency since the beginning of the year, which include an increase in capital spending at their core Catarina asset.  These initiatives have resulted in increased production, including strong production at Catarina in October 2018, which we anticipate will positively impact throughput on the Partnership's midstream assets.  Accordingly, we believe we remain within the range of our forecast for the full year and continue to see opportunities for upside in the years to come.

“Notwithstanding, we note that capital markets have generally shifted away from valuing master limited partnerships on yield and see little opportunity to fund growth at the Partnership with equity issuances in the current environment.  With this in mind, we have made the decision to set the third quarter 2018 cash distribution at $0.15 per common unit in order to enhance the Partnership's financial flexibility and meaningfully impact distribution coverage.  Having declared the new cash distribution, we plan to use cash from operations to fund growth capital, reduce debt and position the Partnership to repurchase common units over time.  The Partnership's third quarter 2018 net income and Adjusted EBITDA improved when compared to second quarter 2018.  As a result, cash available for distribution this quarter was approximately $6.6 million, which covers the new cash distribution on common units by 2.7 times.”

FINANCIAL RESULTS
The Partnership's revenue totaled $18.2 million during third quarter 2018.  Included in total revenue is $14.7 million from the midstream activities of Western Catarina Midstream and the Seco Pipeline, approximately $5.9 million from production activities, a $0.6 million loss on hedge settlements and a $1.8 million loss on mark-to-market activities, which is a non-cash item.

Earnings from Carnero G&P LLC, the Partnership's 50/50 midstream joint venture with Targa Resources Corp. (NYSE: TRGP) in South Texas (“the Carnero JV”) totaled $2.3 millionduring third quarter 2018.  Cash distributions to the Partnership from the Carnero JV related to third quarter 2018 operating results were $6.4 million.

The Partnership recorded net income of $0.4 million for third quarter 2018, which compares to a net loss of $1.8 million for second quarter 2018 and net income of $3.8 million for third quarter 2017.

The Partnership's Adjusted EBITDA (a non-GAAP financial measure) for third quarter 2018 was $18.4 million, which compares to Adjusted EBITDA of approximately $17.6 million for second quarter 2018 and Adjusted EBITDA of $17.8 million for third quarter 2017.  The Partnership's calculation of Adjusted EBITDA is discussed in further detail below.

LIQUIDITY UPDATE
As of Sept. 30, 2018, the Partnership had $184 million in debt outstanding under its credit facility, which has a current borrowing base of $310 million and an elected commitment amount of $210 million.  The midstream portion of the borrowing base is $275 million, which results in the Partnership's midstream collateral covering the $210 million elected commitment amount by approximately 1.3 times.

The Partnership had approximately $2.3 million in cash and cash equivalents as of Sept. 30, 2018. 

HEDGE UPDATE
For the full year 2018, the Partnership has hedged approximately 497,328 million British thermal units (“MMBtu”) of its natural gas production at an effective NYMEX fixed price of approximately $3.00 per MMBtu and approximately 260 thousand barrels of its crude oil production at an effective NYMEX fixed price of approximately $59.73 per barrel.  The Partnership has additional hedges covering a portion of its production in 2019 and 2020.  Additional information about SNMP's hedges can be found in the Partnership's documents on file with the U.S. Securities and Exchange Commission and in the Investor Presentation available on the Partnership's website (www.sanchezmidstream.com).

DISTRIBUTIONS
On Nov. 8, 2018, the Partnership declared a third quarter 2018 cash distribution on its common units of $0.15 per unit ($0.60 per unit annualized).  The Partnership also declared a third quarter 2018 distribution to the holders of its Class B preferred units of $0.28225 per Class B preferred unit.  The distributions are payable on Nov. 30, 2018 to holders of record on Nov. 20, 2018.  

Based on third quarter 2018 Adjusted EBITDA of $18.4 million, cash interest expense of $2.5 million, maintenance capital of $0.4 million, and $8.8 million in preferred unit distributions made in cash, the Partnership generated approximately $6.6 million in cash available for distribution (a non-GAAP financial measure) during third quarter 2018, resulting in a distribution coverage ratio of 2.7 times.



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