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Utica, Marcellus Midstream Players Put on 3Q2016 Happy Face

Two master limited partnership (MLP) midstream organizations created for the shale gas revolution, Summit Midstream Partners LP and Cone Midstream Partners LP, stayed relatively sanguine about the future based on their respective 3Q2016 earnings conference calls with analysts last week.

For Woodlands, TX-based Summit, natural gas volume throughput in its system increased 8.7% in the latest quarter, averaging 1.57 Bcf/d, compared to 1.44 Bcf/d in the prior-year period. Volumes were also up by 4% from the 2Q2016 average throughput (1.51 Bcf/d).

Cone Midstream, jointly owned 50-50 by Marcellus producers, Consol Energy Inc. and Noble Energy Inc., which recently ended the E&P portion of their joint venture (JV) (see Shale Daily, Oct. 31), reported its average daily throughput shot up in this most recently ended quarter compared to the 3Q2015: 840 billion Btu/d versus 642 billion Btu/d.

"Net income attributable to the partnership, adjusted EBITDA and distributable cash flow all increased by approximately 20% as compared to third quarter last year," said Cone CEO John Lewis, who is also a senior vice president with Noble.

In response to analysts questions, Lewis downplayed the impact of the Consol-Noble JV split to the future operation of the MLP midstream operations, which remain 50-50 owned by the two producers.

"This agreement between the sponsors does not change the total acreage dedicated by Consol and Noble to Cone, the gathering rates, or other fundamental terms of the services we provide," Lewis said. "Consol and Noble remain co-sponsors of Cone, they retain their respective general partner and limited partnership, partner ownership interest in Cone, and they both continue as shippers on Cone's gathering systems."

Lewis reiterated that the new arrangement between the partners will boost the overall total drilling and production activity within Cone's dedicated acreage, along with an expected acceleration of production-related and E&P investment decisions. He also thinks that greater independence for Cone will help the company eventually ink more long-term deals with shippers.

In response to a specific analyst's questions, Lewis said Cone already is getting more third-party shipping interest on its system. "A couple of things: One is the increased volume of interest that we've had with people coming to Cone, asking us to give estimates, requesting us to gather their gas. So there is that. And then second, we have a very well developed, built-out system through a lot of southwest Pennsylvania and the panhandle area of West Virginia."

Aside from its ongoing successes in the Utica Shale, Summit's focus was more diversified in the third quarter with volume growth of 5% in both the Piceance and Denver-Julesburg (DJ) Basins. "Acreage trades by producers operating upstream of our Piceance and DJ Basin system have resulted in higher volumes due to increased drilling and completion activity behind our gathering system," CEO Steve Newby said. "We expect this trend to continue in the fourth quarter of 2016 and into 2017."

In the Williston Basin in North Dakota, Summit saw its liquids volume throughput increase 7% over 2Q2016 and adjusted EBITDA was up 14% from the second quarter.  

"The Williston segment benefited from 28 drilled-but-uncompleted [DUC] well completions by two of our largest customers," Newby said. "On the associated natural gas side, we continue to see relatively flat volumes on our system as gas-to-oil ratios continue to outperform our expectations."

Summit's 100%-owned and operated Utica system, Summit Midstream Utica, had what Newby called "a very good quarter with gathered volumes up 40%" over 2Q2016 and up 450% over the third quarter last year. "This increase occurred despite a challenging local gas price market in the Northeast due to basis differentials, which are affecting several of our customers," he said.

Deflecting a question on the earnings conference call last Thursday, Newby said Summit's Utica Ohio gathering system has seen its growth challenged by the low commodity pricing in the region, "but our position in the core of the play cannot be underestimated. Our Utica systems combined have approximately 900,000 dedicated acres across all three windows of the southeastern core of the play."

In addition, Newby said that with the increased advent of multi-well pad drilling and strong initial well production "significant production growth could be driven in a short time frame which we have recently experienced on our wholly-owned Summit Utica gathering system."

Regarding rigs in the area, Newby noted that going into next year he has seen some positive announcements from some of the largest Summit customers, causing him to view 2017 as being challenging somewhat overall because of basis differentials in the area and low commodity prices for not only gas but also natural gas liquids (NGL).

"What we are definitely seeing and hearing is somewhat of a ramp-up during 2017 for what is believed to be by most some relief coming at the end of the [2017 calendar] year on basis and into 2018 as well. So I think we'll get our fair share of that; others will too. We operate across all three windows and we probably have one of the largest gathering positions in the [Utica] basin. So, we feel good about where we are."

In response to another question, Newby indicated he thinks the controversial Dakota Access oil pipeline project eventually will be completed and Summit wants to be interconnected with it in the Williston Basin in North Dakota.

"Our customers want us to be connected to it," Newby said. "And so we're moving down that path. It's about a $6 million or $7 million [interconnection] project for us. We have our own permitting, that's going on with the state, and we expect to receive that permit by the end of the year, and then, we'll begin construction."

For 3Q2016, Summit reported net income of $2 million, compared to net income of $3.5 million for the same period last year.

For the most recent quarter, Cone had net income of $36.3 million (26.3 cents/unit), compared to $33.6 million (22.8 cents) for the same period in 2015.

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