ENBL stock: Second quarter 2020 Financial and Operating results

August 5, 2020

Introduction

It was my mistake since I sold ENBL 800 shares this morning. I was so surprised to see the gains and sold it. Now I just noticed that price went up another 40 cents in less than 3 hours. I found out that second quarter result of 2020 is coming out today. 

Enable midstream partners

I like to go over the reports quickly. 

• Contracted or extended over 950,000 dekatherms per day (Dth/d) of transportation capacity during second quarter 2020
• Received a firm, 80,000 Dth/d commitment for Enable Mississippi River Transmission, LLC’s (MRT) Southbound Expansion project
• Achieved record quarterly Ark-La-Tex Basin natural gas gathered volumes
• On track to achieve the capital and cost reductions announced earlier this year
• Reaffirming 2020 financial outlook
• Declared a quarterly cash distribution of $0.16525 per unit on all outstanding common units and $0.625 on all outstanding Series A Preferred Units

Enable Midstream Partners, LP (NYSE: ENBL) today announced financial and operating results for second quarter 2020.

Net income attributable to limited partners was $44 million for second quarter 2020, a decrease of $80 million compared to $124 million for second quarter 2019. Net income attributable to common units was $35 million for second quarter 2020, a decrease of $80 million compared to $115 million for second quarter 2019. Net cash provided by operating activities was $111 million for second quarter 2020, a decrease of $101 million compared to $212 million for second quarter 2019. Adjusted EBITDA was $224 million for second quarter 2020, a decrease of $57 million compared to $281 million for second quarter 2019. Distributable cash flow (DCF) was $148 million for second quarter 2020, a decrease of $49 million compared to $197 million for second quarter 2019.

Enable uses derivatives to manage commodity price risk, and the gain or loss associated with these derivatives is recognized in earnings. Enable’s net income attributable to limited partners and net income attributable to common units for second quarter 2020 included a $5 million loss on commodity derivative activity, compared to a $16 million gain on commodity derivative activity for second quarter 2019, resulting in a decrease in net income of $21 million. The decrease of $21 million is comprised of a decrease related to the change in fair value of commodity derivatives of $23 million, partially offset by an increase in realized gain on commodity derivatives of $2 million.

For second quarter 2020, DCF exceeded declared distributions to common unitholders by $76 million, resulting in a distribution coverage ratio of 2.06x.

For additional information regarding the non-GAAP financial measures Gross margin, Adjusted EBITDA, DCF, Adjusted interest expense and distribution coverage ratio, please see "Non-GAAP Financial Measures."

MANAGEMENT PERSPECTIVE

"With producers bringing shut-in wells in oilier plays back to our gathering systems earlier than anticipated, we saw less than expected curtailment of crude-focused production during the second quarter," said Rod Sailor, president and CEO. "Highlighting the strength of the Haynesville Shale play, the second quarter also saw the highest quarter of natural gas gathered volumes in the Ark-La-Tex Basin since the partnership’s inception. Enable continues to operate at a high level of safety and reliability through these uncertain times, and we remain on track to achieve the capital and cost reductions announced in April of this year."

BUSINESS AND FINANCIAL HIGHLIGHTS

During second quarter 2020, Enable contracted or extended over 950,000 Dth/d of firm transportation capacity, including previously announced recontracted capacity with Enable Gas Transmission, LLC’s (EGT) largest customer, CenterPoint Energy Resources Corp (CERC). The contract term for most of the renewed CERC capacity is nine years, and the effective date of the new contracts will be April 1, 2021.

On July 7, 2020, Federal Energy Regulatory Commission (FERC) staff issued a revised schedule for the completion of the environmental assessment for the Gulf Run Pipeline project. The FERC’s current schedule anticipates an environmental assessment will be issued by Oct. 29, 2020. The project is proceeding on schedule and is expected to be placed into service in late 2022, subject to FERC approval. EGT’s MASS project, a supply-driven project designed to deliver gas from the Anadarko and Arkoma basins to delivery points with access to emerging Gulf Coast markets and growing demand markets in the Southeast, also remains on schedule and is expected to be placed into service in the second quarter of 2021.

MRT recently received a five-year commitment for 80,000 Dth/d of firm capacity for the pipeline’s Southbound Expansion project. The project will provide transportation capacity from various receipt points on MRT’s East Line to various delivery points in MRT’s Market and Field Zones and is scheduled to go into service in the fourth quarter of 2020.

As of July 29, 2020, there were seven rigs across Enable’s footprint that were drilling wells expected to be connected to Enable’s gathering systems. Three of those rigs were in the Anadarko Basin, three were in the Ark-La-Tex Basin and one was in the Williston Basin. The partnership’s Ark-La-Tex Basin natural gas gathering system gathered record quarterly volumes for second quarter 2020, driven by continued producer investment in the Haynesville Shale play. Producers continue to bring shut-in natural gas, crude oil and condensate volumes back online, and Enable has not experienced a degradation in production from these wells.

During second quarter 2020, the partnership repurchased approximately $22 million aggregate principal amount of senior notes in the open market for approximately $17 million plus accrued interest. These repurchases resulted in a $5 million gain on extinguishment of debt. The partnership will continue to evaluate opportunistic note repurchases based on market conditions and available liquidity.

QUARTERLY DISTRIBUTIONS

On Aug. 4, 2020, the board of directors of Enable’s general partner declared a quarterly cash distribution of $0.16525 per unit on all outstanding common units for the quarter ended June 30, 2020. The distribution is unchanged from the previous quarter. The quarterly cash distribution of $0.16525 per unit on all outstanding common units will be paid Aug. 25, 2020, to unitholders of record at the close of business Aug. 18, 2020.

The board declared a quarterly cash distribution of $0.625 per unit on all outstanding Series A Preferred Units for the quarter ended June 30, 2020. The quarterly cash distribution of $0.625 per unit on all outstanding Series A Preferred Units will be paid Aug. 14, 2020, to unitholders of record at the close of business Aug. 4, 2020.

KEY OPERATING STATISTICS

Natural gas gathered volumes were 4.14 trillion British thermal units per day (TBtu/d) for second quarter 2020, a decrease of 10% compared to 4.62 TBtu/d for second quarter 2019. The decrease was primarily due to shut-in production in the Anadarko Basin, partially offset by higher gathered volumes in the Ark-La-Tex Basin.

Natural gas processed volumes were 2.04 TBtu/d for second quarter 2020, a decrease of 20% compared to 2.54 TBtu/d for second quarter 2019. The decrease was due to lower processed volumes across all basins.

Crude oil and condensate gathered volumes were 84.68 thousand barrels per day (MBbl/d) for second quarter 2020, a decrease of 29% compared to 119.34 MBbl/d for second quarter 2019. The decrease was primarily due to a decrease in crude oil and condensate gathered volumes as a result of shut-in production in the Anadarko and Williston Basins.

Transported volumes were 5.40 TBtu/d for second quarter 2020, a decrease of 11% compared to 6.04 TBtu/d for second quarter 2019. The decrease was primarily due to lower transported volumes due to decreased production in the Anadarko Basin.

Interstate transportation firm contracted capacity was 5.78 billion cubic feet per day (Bcf/d) for second quarter 2020, a decrease of 9% compared to 6.38 Bcf/d for second quarter 2019. The decrease was primarily related to contract expirations, including lower recontracted capacity on the MRT system.

Intrastate transportation average deliveries were 1.67 TBtu/d for second quarter 2020, a decrease of 19% compared to 2.06 TBtu/d for second quarter 2019. The decrease was primarily due to decreased production in the Anadarko Basin.

SECOND QUARTER FINANCIAL PERFORMANCE

Revenues were $515 million for second quarter 2020, a decrease of $220 million compared to $735 million for second quarter 2019. Revenues are net of $59 million of intercompany eliminations for second quarter 2020 and $104 million of intercompany eliminations for second quarter 2019.

Gathering and processing segment revenues were $391 million for second quarter 2020, a decrease of $196 million compared to $587 million for second quarter 2019. The decrease in gathering and processing segment revenues was primarily due to:

• a decrease in revenues from natural gas liquids (NGL) sales primarily due to lower average market prices for NGL products and lower processed volumes as well as a decrease in revenues from natural gas sales due to lower average sales prices and lower sales volumes,
• a decrease in processing service revenues due to lower processed volumes under fee-based arrangements, partially offset by the recognition of certain annual minimum processing fees,
• a decrease in changes in the fair value of natural gas, condensate and NGL derivatives,
• a decrease in crude oil, condensate and produced water gathering revenues primarily due to a decrease in gathered volumes,
• a decrease in natural gas gathering revenues due to lower gathered volumes in the Anadarko and Arkoma Basins and lower shortfall payments associated with the expiration of certain minimum volume commitment contracts in the Ark-La-Tex and Arkoma Basins, partially offset by higher revenue associated with the third quarter 2019 amendment of certain minimum volume commitment contracts in the Arkoma Basin and
• a decrease in intercompany management fees.

These decreases were partially offset by an increase in realized gains on natural gas, condensate and NGL derivatives.

Transportation and storage segment revenues were $183 million for second quarter 2020, a decrease of $69 million compared to $252 million for second quarter 2019. The decrease in transportation and storage segment revenues was primarily due to:

• a decrease in revenues from natural gas sales primarily due to lower sales volumes and lower average sales prices,
• a decrease in firm transportation and storage services due to lower interstate contracted capacity and lower rates on certain contracts for intrastate service with power generators, partially offset by higher recognized rates subsequent to the settlement of the MRT rate cases,
• a decrease in volume-dependent transportation and storage revenues due to lower off-system intrastate transportation rates and lower transported volumes due to decreased production activity in the Anadarko Basin,
• a decrease in revenues from NGL sales due to lower average sales prices and lower volumes, and
• a decrease due to realized losses on natural gas derivatives.

Gross margin was $338 million for second quarter 2020, a decrease of $80 million compared to $418 million for second quarter 2019.

Gathering and processing segment gross margin was $215 million for second quarter 2020, a decrease of $75 million compared to $290 million for second quarter 2019. The decrease in gathering and processing segment gross margin was primarily due to:

• a decrease in revenues from natural gas sales due to lower average sales prices and lower sales volumes,
• a decrease in changes in the fair value of natural gas, condensate and NGL derivatives,
• a decrease in revenues from NGL sales due to lower average sales prices for NGL products,
• a decrease in crude, condensate and produced water gathering revenues primarily due to a decrease in gathered volumes,
• a decrease in natural gas gathering fees due to lower gathered volumes in the Anadarko and Arkoma Basins and lower shortfall payments associated with the expiration of certain minimum volume commitment contracts in the Ark-La-Tex and Arkoma Basins, partially offset by higher revenue associated with the third quarter 2019 amendment of certain minimum volume commitment contracts in the Arkoma Basin and
• a decrease in intercompany management fees.

These decreases were partially offset by an increase in realized gains on natural gas, condensate and NGL derivatives.

Transportation and storage segment gross margin was $124 million for second quarter 2020, a decrease of $5 million compared to $129 million for second quarter 2019. The decrease in transportation and storage segment gross margin was primarily due to:

• a decrease in firm transportation and storage services due to lower interstate contracted capacity and lower rates on certain contracts for intrastate service with power generators, partially offset by higher recognized rates subsequent to the settlement of the MRT rate case,
• a decrease in volume-dependent transportation and storage revenues due to lower off-system intrastate transportation rates and lower transported volumes due to decreased production activity in the Anadarko Basin,
• an increase in realized losses on natural gas derivatives, and
• a decrease in revenues from NGL sales due to lower average sales prices and lower volumes.

These decreases were partially offset by an increase in system management activities and a reduction in lower of cost or net realizable value adjustments related to natural gas storage inventories.

Operation and maintenance and general and administrative expenses were $136 million for second quarter 2020, an increase of $12 million compared to $124 million for second quarter 2019. The increase in operation and maintenance and general and administrative expenses was primarily due to a loss on retirement of an Ark-La-Tex gathering system in 2020, partially offset by a decrease in compressor rentals and a decrease in materials and supplies due to the timing of operation and maintenance activities and lower maintenance on treating plants as compared to the prior year.

Depreciation and amortization expense was $105 million for second quarter 2020, a decrease of $5 million compared to $110 million for second quarter 2019. The decrease in depreciation and amortization expense was primarily related to new depreciation rates implemented in the prior year, which resulted in higher depreciation expense in 2019 for certain assets with shorter remaining useful lives, as compared to 2020.

Interest expense was $46 million for second quarter 2020, a decrease of $2 million compared to $48 million for second quarter 2019. The decrease was primarily due to lower interest rates on the partnership’s short-term borrowings.

Capital expenditures were $48 million for second quarter 2020, compared to $109 million for second quarter 2019. Expansion capital expenditures were $26 million for second quarter 2020, compared to $83 million for second quarter 2019. Maintenance capital expenditures were $22 million for second quarter 2020, compared to $26 million for second quarter 2019.

2020 OUTLOOK

Enable reaffirms the 2020 outlook presented in its first quarter 2020 financial results press release dated May 6, 2020.

EARNINGS CONFERENCE CALL AND WEBCAST

A conference call discussing second quarter results is scheduled today at 10 a.m. EDT (9 a.m. CDT). The toll-free dial-in number to access the conference call is 833-968-1938, and the international dial-in number is 778-560-2726. The conference call ID is 7684665. Investors may also listen to the call via Enable’s website at https://investors.enablemidstream.com. Replays of the conference call will be available on Enable’s website.