The Daley Note: September 27, 2022
Summit Midstream (SMLP) will sell its Bison Midstream gas gathering system in North Dakota to Steel Reef Infrastructure for $40 million in cash, the companies announced this past week (Sept. 19). We estimate Bison to provide 4% of total 2022 SMLP Adj. EBITDA, and we currently model 1 rig on the system.
SMLP could benefit from continuing to sell specific assets during the year to come. The company sold the Lane G&P system in the Delaware Basin earlier this year (June 30). Lane sold for a cash sale price of $75 million and the assumption of an additional 60 MMcf/d take-or-pay firm capacity behind Double E pipeline. The Bison Midstream asset represents $8 million (4%) of the total Adj. EBITDA for 2022 ($215 million in FY2022) East Daley forecasts for SMLP. The sale is subject to customary transaction adjustments and will transfer all of SMLP’s interest in Burke and Mountrail counties, North Dakota, to Steel Reef.
Bison is a gas gathering, compression and treatment system fed by associated gas from Bakken and Three Forks crude oil production. The sale includes Bison’s long-term fee-based and percent-of-proceeds (POP) gathering and processing agreements.
The 1 rig we currently model on Bison returned to the system in March 2022, likely in response to rapidly climbing commodity prices. With current price levels, East Daley expects associated gas production on the system to average 11.4 MMcf/d in 2022, climbing to 15.2 MMcf/d in 2023. This could be a good sign for Steel Reef.
The 2Q22 Lane transaction reduced East Daley’s calculated total leverage ratio for SMLP by ~0.3x, and it increased SMLP’s total liquidity to $255 million as of June 30. The proceeds from the sale will likely be used to reduce the debt outstanding under the ABL Facility. However, management has stated they will be using cash to reinvest in more strategic scale-building opportunities.
The Bakken rig count is ~61% higher than the rig count of 27 a year ago. Compared to last year, midstream operators like ONEOK (OKE), Whiting Petroleum (WLL) and Kinder Morgan (KMI) have seen increased rig activity on their systems in response to high commodity prices. Bison Midstream has potential to continue generating associated gas, which would benefit its new owner, Steel Reef. Additionally, Bakken production seems to be increasing. We model average basin gas production of 3 Bcf/d in 2022 and 3.3 Bcf/d in 2023 (7% growth Y-o-Y). – Maria Paz Urdaneta. Tickers: KMI, OKE, SMLP, WLL.
Webinar: Dissecting U.S. Natural Gas Production
Join us at 12 p.m. ET on Wednesday, October 12 for a webinar discussion of U.S. natural gas supply and demand. In this 30-minute webinar, East Daley analysts will go behind the curtain and share our unique production methodology. Click here to register and for more information. For those interested in a deeper dive into natural gas market dynamics, we published an updated monthly Macro U.S. Supply & Demand Forecast Report and Dataset this week (Sept. 26). Please contact Zack Van Everen to request a copy.
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