Ladies and gentlemen, thank you for standing by and welcome to the Altus Midstream Company Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Mr. Patrick Cassidy. Thank you. Please go ahead.

Good afternoon, and thank you for joining us on Altus Midstream Company's fourth quarter and full year 2019 financial and operational results conference call. We will begin the call with an overview by Altus Midstream's CEO and President, Clay Bretches and Ben Rodgers, CFO, will summarize our financial performance and outlook. Our prepared remarks will be approximately 15 minutes in length with the remainder of the call allotted for Q&A. Remarks during the call may also refer to the Altus Midstream investor presentation, which can be found on our Investor Relations website at altusmidstream.com/investors. On today's conference call, we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the investor presentation posted yesterday on the Investor Relations website previously noted. Finally, I'd like to remind everyone that today's discussion will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. Information being discussed today is based on estimates at this time and the final amounts in the Altus Midstream Form 10-K may be materially different than those on last night's earnings release or referenced in today's call. Altus Midstream's Form 10-K is expected to be filed next month upon completion of the audit of the financial statements for the year ended December 31, 2019 for each of the pipeline entities, in which we own an equity interest. A full disclaimer is located with the investor presentation on our website. With that, I will turn the call over to Clay.

Good afternoon and thank you for joining us. On our call today, we'll highlight key accomplishments during 2019 and the recently completed fourth quarter, provide an update on the operating environment we're facing today and offer an outlook for the year ahead. By nearly any measure 2019 was a challenging year. Prices for natural gas and natural gas liquids collapsed compared to historic levels. Basis differential out of Waha were volatile and generally weak and activity levels at Alpine High declined significantly from the prior year. Our fourth quarter and full year 2019 results include a $1.3 billion impairment related to a reduced Alpine High development outlook and weak commodity prices. Despite these challenges, we largely accomplished the goals we set at the beginning of the year. We entered 2019 with an ambitious plan to exercise the remaining three options to acquire ownership in our long-haul pipeline projects, secure financing for our capital plans without issuing common equity, complete construction of three state-of-the-art cryogenic processing plants and conduct our operations to meet the highest safety and environmental standards in the industry. I am pleased to say we have accomplished all of those goals. The employees working on Altus projects have done an outstanding job. I'll start the review with our joint venture pipeline projects as these will be the key drivers to our earnings growth in the foreseeable future. The Permian Basin remains takeaway capacity constrained even with expected activity levels lower than a year ago, leading to strong inherent value in these joint ventures. For 2019, JV pipe adjusted EBITDA exceeded the midpoint of our guidance and we are encouraged with the prospects going forward. Altus owns equity interest in four long-haul pipelines that transport natural gas, NGLs and crude oil from the Permian Basin to the Gulf Coast.…

Thank you, Clay. As noted in the press release issued yesterday, Altus reported a fourth quarter net loss including non-controlling interest of $1.33 billion. This included $1.36 billion for impairments of Altus gathering and processing assets to reflect lower volume expectations from Alpine High and associated deferred tax charges. As Apache noted in their call today, they dropped the remainder of their drilling rigs at Alpine High and have no current plans for future drilling. Excluding those and other items, Altus generated fourth quarter adjusted EBITDA of approximately $46.2 million. Gathering and processing volumes averaged 643 million cubic feet per day, up 38% compared with 467 million cubic feet per day in the preceding period. The quarter-to-quarter increase represents both new well hookups at Alpine High and production volumes that were brought back online with the start-up of GCX in late September. Approximately 65% of fourth quarter volumes were rich gas. Capital investments in midstream infrastructure during the quarter were $196 million. This included $164 million for our JV pipeline projects, which comprises capital calls for our ownership in our long-haul JV pipeline projects. Capital for gathering and processing infrastructure for the fourth quarter came in at $32 million. For the year, Altus reported a net loss, including non-controlling interest of $1.34 billion. Excluding the impairment items noted above, we generated $86.3 million of adjusted EBITDA, coming in above the high end of our guidance range, mostly achieved through aggressive cost-cutting and organizational rightsizing. Performance-related to our investments in GCX and Shin Oak pipeline also exceeded expectations. Gathered volumes averaged 509 million cubic feet per day, above the high end of our most recent gathered volume forecast for 2019. In 2019, capital investments totaled $1.47 billion, which represents cash outlays by Altus during the year. Of this, $1.17 billion was…

Thank you. [Operator Instructions] Our first question comes from Spiro Dounis with Credit Suisse. Your line is now open.

Hey, good afternoon, guys. Clay, just maybe want to pick up on one of the last comments you made around the strategic options available to you. Just looking for more color there. It sounds like you kind of have taken an everything-is-on-the-table approach, but just trying to think through maybe weeding out some of the things that maybe are kind of out of reach, thinking acquisition may be tough, just given where your stock currency is. I'm just wondering do you feel like you have the balance sheet capacity to go after some larger third-party projects here. Thinking about asset sales, is anything larger scale fit in? And does Apache become part of the strategic review as well? Just hoping to really narrow the focus here to a few maybe tangible options that you think are available to you.

Yes. Well, first and foremost -- Spiro, thanks for the question. But, first and foremost, the objective, our foremost objective is to maximize value for Altus shareholders. So when we look at this, we look at how we can do this, the menu that we see before us is -- it includes third-party business, it includes potential divestments, partnerships, some other form of combination or joint venture. Really nothing is off the table at this point in time. And again, go back to the first and foremost objective and that is to maximize value. So we're entertaining a variety of ideas. We had a few inbounds from various banks and others that have ideas on ways to do this. We're also brainstorming internally on how we can do that. We're very active on the third-party side in terms of trying to attract business, both from producers and other midstream players in the area and we have a good line of sight on that. We've actually started -- as we stated in our release, we've actually started some third-party business taking off-spec natural gas liquids into our plants, so that we can clean those up and make them marketable. And that's a nice margin business and something that we feel like that we can grow and scale up. As far as being able to bring in additional business on the third-party side, we are very much open for business. We have state-of-the-art SRX technology -- Ortloff SRX technology cryo plants that have the highest recoveries in the basin. So we think that that's going to be a strategic component in our arsenal. In addition to that, we have connections to multiple pipelines, both NGL and natural gas. And we believe that getting those liquids out of the basin into the Gulf…

Got it. That was very helpful. And just on the JV assets, it segues into my next question here. You guys have laid out the G&P impact, just from a volume perspective, to the extent that you see further declines in the basin. But just trying to get a sense of what's underlying your guidance with respect to JV price? So, obviously, a lot of those volumes do flow through those pipes, a good amount of it is on MVC, but you still have some volume risk. So just trying to get a sense of quantifying that. Is all that sort of in your guidance as well?

Yes. So let me take a swing at it and then I'll let Ben get over into the specifics. But you point out correctly, the natural gas pipelines, both Permian Highway and Gulf Coast Express, MVC is on both of those, fully subscribed, great pipes, great assets for us to have a piece of, so we're super excited about those. The other two pipelines that don't have the MVC is mini MVCs, let me put it that way. Shin Oak on the NGL side and then EPIC Crude pipeline which has some MVCs more shorter-term in nature, but there are some MVCs associated with that. But we continue to see volumes climb on EPIC and Ben can talk a little bit about that. We've been very conservative in the way that we forecast that but we believe that EPIC is a great crude pipeline. And we believe the destination in Corpus Christi is going to be strategic to Permian producers as we move forward. So we think that's going to be a really great pipe as time goes on. Shin Oak as well. We have a lot of confidence that Shin Oak is -- we'll see additional volumes on Shin Oak. They're running about 300,000 a day right now on Shin Oak, but we actually saw them just ramp up to 550,000 barrels per day in the fourth quarter. We think we're going to see those volumes continue to grow as we see recovery occur. And I mentioned this in my comments earlier that we see more ethane recovery occurring right now because of the awful Waha gas -- natural gas differential. The basis at Waha right now is driving a lot of producers into ethane recovery, which should ramp-up the volumes on Shin Oak. So we expect those volumes to be going up very soon. But all-in-all great set of assets more variability I guess you would say on both Shin Oak and EPIC. But again, we feel really good about those assets. But Ben if you want to talk a little bit about how we model that and the way that those EBITDA targets were achieved?

Yes. Clay hit most of that really the only thing to add is really just going back to what Enterprise said on their call recently with respect to Shin Oak is it's -- and it's in line with our comments too it's flowing approximately 300,000 a day right now. And so -- but they fully expect to try and do more deals to increase volumes on that pipe. As well as us we can go out and any third-party deal that we work through would be incentivized to make sure that we can try and get Y-grade on that pipe as well. So in line with that we're not assuming a lot of herculean growth associated with the Shin Oak pipe it's kind of in and around that same 300,000 number that they mentioned. And I think all the different aspects that go into it that Clay mentioned we took into account for our guidance level.

Thank you. [Operator Instructions] Our next question comes from Becca Followill with U.S. Capital Advisors. Your line is now open.

Good afternoon, guys. On your slide deck you no longer have 2021 guidance. Can you speak to that?

Yes. Becca, it kind of goes to what we did last year as well. In line with what we've provided historically throughout the year as we get more clarity for what the following year is we provide updates. Didn't -- have not provided volume forecast more than a year out. So that goes into it. And kind of given the uncertainties around the third-party business that we're actively pursuing now that could move G&P volumes additional -- we know how dynamic the market is on the other JV pipes that we have flows from EPIC and Shin Oak. We are in close communication with those partners. And really a lot of the discussion we've had with each of those really goes one year out. And then the other piece is just the timing of PHP. We're at 27% equity owner with that the same as Kinder Morgan and EagleClaw. And the timing of that could move within the first quarter is what Kinder Morgan has said. And until we have more clarity on that I didn't want to put anything out there definitively. So we knew what we had in 2020 with respect to our G&P business and the JV pipes. Too many moving parts right now for us to land on a specific midpoint and guidance number for 2021.

Understood. And then next question is how much third-party business are you currently doing?

The only third-party that we have right now is with respect to the NGL stabilization business that Clay mentioned it's at the cryogenic side it's with a counterparty that brings us off-spec Y-grade barrels. And just like he said we clean them up and sell back to them the condensate barrels that come out of that as well as we sell the Y-grade and the residue gas. And so that is something that we think we can grow. Our stabilization unit can handle upwards of 10,000 barrels a day. And we're not doing that volume right now. I think our assumption for this year is pretty small. That is kind of a month-to-month style contract that we have, but we've been processing that in 2020 so far. So it's just a good first step to show that we can attract third-party business to the entire site. Doesn't have to be just as a traditional producer. So it's -- again it's -- I think Clay mentioned that it's immaterial to our adjusted EBITDA forecast, but it's a good step in the right direction.

Thanks. And then my last question is when you look at the strategic review and you go back to the original reason that Altus was put out as a public company it was for an Alpine High. And that is no longer -- at least for now it's not -- no longer going to be developed. And you have a bunch equity stakes at pipes which are good, but it's not what normally you would have as a stand-alone company. So does it make sense for Altus to be a stand-alone company in light of the change in philosophy on Alpine High?

So Becca, this is Clay and to address that question it does make sense for now for us to be a stand-alone company as we are situated. You have to realize this is all fairly sudden. This has evolved over the last year to the point where we are now. We never expected to be in a situation where we were not going to be fully servicing Alpine High gas. If you go back to where we were a year ago not only did we expect to fill these three cryogenic plants with Alpine High gas. We also expected to be starting plant number 4, in 2020 or early 2021, with plant number 5, shortly thereafter. So this is a real turnaround. We always had an expectation, that we would be pursuing third-party business, particularly gas processing and gathering. We expected that to happen, but we really weren't expecting that to happen, until around year three. So, what it has caused us to do is accelerate our program. And really augment the commercial side of our business make sure that we have the proper business development staff in place, where we can go out. And do the work. But because this is fairly recent, at least, in terms of business development days, because it does take time, you don't just turn on a dime. And start attracting third-party business. Furthermore, with the three cryogenic plants and Apache thinking that, they were going to utilize all three. There wasn't a real willingness on Apache, in the past, for Altus to go out. And they had first dibs on those plants, to go out and pursue third-party business. Now that, they have reduced the rig count to zero. And are not going to be pursuing any additional activity, in the area in…

Thank you.

Thank you. And I'm showing no further questions in the queue, at this time. I'd like to turn the call back to Clay Bretches for any closing remarks.

So, thank you again, for listening into our call. Before we end, I want to leave you with some final thoughts. As we look ahead into 2020 and beyond, I see a company and asset portfolio well positioned to compete, despite increasing pressures and challenges on multiple industry and market fronts. Our SRX cryogenic processing technology offers, best-in-class capability at scale. Our operational and on-time budget execution performance, provide a strong track record in which, future producer customers can feel confident, as we compete for their business. Altus is proactive and purposeful ESG mindset. Most vividly illustrated by our very low and declining flaring and curtailment metrics, bolster our competitive strengths as potential producer customers and midstream JV partners alike will increasingly seek to align with industry-leading performers, in this important arena. And while our stock price performance has been disappointing. Our balance sheet and liquidity positions are sound, providing Altus with differential flexibility to maneuver on a challenging and rapidly changing midstream landscape. I look forward to sharing with you our progress in 2020. Thank you and good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.