8-K: EnLink Midstream Reports Record 2023 Results and Issues Positive 2024 Guidance

EnLink Midstream announced strong financial results for 2023, including a 5% increase in adjusted EBITDA, and provided a positive outlook for 2024 with continued growth expected.

Summary

• EnLink Midstream reported a net income of $100.1 million for the fourth quarter of 2023 and $350 million for the full year.
• The company generated an adjusted EBITDA of $350.8 million in Q4 2023 and $1.35 billion for the full year, representing a 5% growth compared to 2022.
• Net cash provided by operations was $360.7 million for the fourth quarter and $1.22 billion for the full year.
• Free cash flow after distributions (FCFAD) was $79.4 million for Q4 and $247 million for the full year.
• EnLink increased its quarterly distribution by approximately 6% to $0.1325 per unit and repurchased $90 million in common units in Q4, bringing the total for 2023 to $250 million.
• The company expects 2024 adjusted EBITDA to be between $1.31 billion and $1.41 billion, representing a 4% growth in its base business, excluding legacy contract resets and divestitures.
• EnLink anticipates generating approximately $290 million in FCFAD in 2024 based on the midpoint of its guidance.
• The company has reauthorized a unit repurchase program for 2024 with $200 million allocated for repurchases.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, increased distributions, and a positive outlook for 2024. The company's strategic focus on growth and carbon capture also contributes to the positive sentiment.

Positives

• EnLink achieved record adjusted EBITDA of $1.35 billion in 2023.
• The company successfully executed a $250 million common unit repurchase program in 2023.
• EnLink increased its quarterly distribution to unitholders by approximately 6%.
• The company is experiencing strong producer drilling activity in the Permian basin.
• EnLink is capitalizing on its first-mover status in carbon dioxide transportation projects across the Gulf Coast.
• The company expects a significant increase in FCFAD in 2024 compared to 2023.
• EnLink's capital expenditures are focused on high-return, capital-efficient projects.

Negatives

• The Oklahoma and North Texas segments are expected to see a decline in segment profit in 2024 due to one-time rate resets on legacy contracts.
• The company experienced a decrease in natural gas transportation volumes in the Louisiana segment compared to the fourth quarter of 2022.
• The North Texas segment saw a decrease in segment profit and natural gas gathering and processing volumes compared to the fourth quarter of 2022.

Risks

• The company faces potential conflicts of interest with Global Infrastructure Partners (GIP).
• GIP's ability to compete with EnLink and not being required to offer additional assets or businesses to EnLink poses a risk.
• A default under GIP's credit facility or a change in control of GIP could adversely affect EnLink.
• EnLink is dependent on key customers for a substantial portion of its business.
• Adverse developments in the midstream business could reduce EnLink's ability to make distributions.
• Competition for crude oil, natural gas, and NGL supplies could impact the company.
• Climate change legislation and regulatory initiatives could increase operating costs and reduce demand for EnLink's services.
• Volatile prices and market demand for crude oil, natural gas, and NGLs are beyond EnLink's control.
• Construction risks in major development projects could impact the company.
• Challenges in building a CCS transportation business and entering new lines of business related to the energy transition could pose risks.

Future Outlook

EnLink expects continued growth in 2024 with adjusted EBITDA projected to grow by approximately 4% in its base business, excluding the effects of legacy contract resets and the divestiture of non-core assets. The company also anticipates generating approximately $290 million in FCFAD based on the midpoint of its 2024 guidance.

Management Comments

• EnLink delivered another record year by generating adjusted EBITDA of $1.35 billion, achieving the midpoint of 2023 guidance and 5% growth over the prior year, said EnLink Chief Executive Officer Jesse Arenivas.
• We remain committed to returning capital to our investors in 2024, as reflected in the recent decision to raise our distribution for the fourth quarter of 2023 and to initiate our third annual unit repurchase authorization of at least $200 million, said EnLink Chief Executive Officer Jesse Arenivas.
• We expect the positive momentum to continue this year across our business segments, including in our two largest segments the Permian and Louisiana while also continuing to capitalize on our first mover status to secure carbon dioxide (CO2) transportation projects across the Gulf Coast, said EnLink Chief Executive Officer Jesse Arenivas.

Industry Context

This announcement reflects the ongoing strength in the midstream sector, particularly in regions like the Permian Basin, where EnLink is experiencing strong producer activity. The company's focus on carbon capture and sequestration also aligns with the broader industry trend towards energy transition and sustainability.

Comparison to Industry Standards

• EnLink's 5% adjusted EBITDA growth for 2023 is a solid performance compared to some of its peers in the midstream sector, such as Kinder Morgan and Energy Transfer, which have also reported growth but with varying rates depending on their specific asset portfolios and market exposure.
• The company's focus on unit repurchases and increased distributions is in line with the trend of returning capital to investors, which is a common practice among mature midstream companies.
• EnLink's expansion into carbon capture and sequestration is a strategic move that positions it well for the future, similar to other companies like Summit Carbon Solutions and Navigator CO2 Ventures, which are also investing in CCS infrastructure.
• The projected 4% growth in base business adjusted EBITDA for 2024 is a reasonable target, considering the current market conditions and the company's operational focus. This is comparable to the growth expectations of other midstream companies with similar asset bases.

Stakeholder Impact

• Shareholders will benefit from increased distributions and unit repurchases.
• Employees may benefit from the company's continued growth and success.
• Customers will continue to receive midstream services from EnLink.
• Suppliers and creditors will continue to have business relationships with EnLink.

Next Steps

• EnLink will host a webcast and conference call on February 21, 2024, to discuss the results.
• The company will continue its unit repurchase program with at least $200 million allocated for 2024.
• EnLink will focus on high-return, capital-efficient projects.
• The company will continue to develop its carbon capture and sequestration business.

Key Dates

Keywords

Midstream, EBITDA, Free Cash Flow, Unit Repurchase, Carbon Capture, Permian Basin, Natural Gas, NGL, Crude Oil, Distribution