The Daley Note: October 31, 2023
Ahead of DT Midstream’s (DTM) 3Q23 earnings this week, East Daley Analytics sees growth in the company’s Haynesville assets as the driver of our above-consensus call. In the DTM Financial Blueprint, we expect DTM to report adj. EBITDA of $241MM, ~$12MM (5%) above consensus.
At the end of August, DTM announced it had completed Phase 1 (+0.3 Bcf/d) of the multi-phase LEAP gathering lateral ahead of schedule. The company expects to complete Phase 2 of LEAP in 1Q24 and Phase 3 in 3Q24. Once fully built, LEAP will be able to move up to 1.9 Bcf/d of Haynesville gas from northwestern Louisiana into the Gillis hub in southern Louisiana, where LEAP interconnects with several interstate pipelines and has easy access to existing and proposed LNG facilities.
EDA’s flow samples for LEAP indicate the newly expanded pipe is running full at just over 1.3 Bcf/d. In the DTM Blueprint, we forecast asset Adj. EBITDA of $18.1MM in 3Q23, nearly $5MM higher Q-o-Q. LEAP throughput is up ~150 MMcf/d on average from 2Q23 in the interstate flow samples we track (see chart).
We also forecasts growth for DTM’s Blue Union gathering system in the Haynesville. System volumes have been in decline for the last three quarters, falling from 1.7 Bcf/d in 4Q22 to 1.53 Bcf/d in 2Q23. However, with the flow sample on the rise, EDA forecasts a corresponding jump in Blue Union gathering volumes. We expect residue gas on the system to average 1.72 Bcf/d for the quarter, translating to a $6.5MM Adj. EBITDA gain Q-o-Q in our asset-level model.
Blue Union still has plenty of room to grow. Currently the system is operating at 78% utilization of a total 2.2 Bcf/d of capacity, but DTM intends to expand the system to over 2.6 Bcf/d by 1Q24. However, on a prior earnings call, management stated that the expansions would be rolled out incrementally and timed with the needs of the anchor shipper.
Based on rig activity, EDA believes the anchor shipper for the expansion is Southwestern Energy (SWN). SWN has guided to a flat production program, which is to be expected given prevailing $2/MMBtu gas prices, so the new capacity on Blue Union likely won’t be needed until 2025 at the earliest. – Oren Pilant Tickers: DTM, SWN.
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