DT Midstream (DTM) Q2 2026 earnings call transcript

Todd Lordman, Director of Investor Relations. Thank you. Please go ahead. Good morning and welcome everyone. Before we get started, I would like to remind you to read the safe harbor statement on page two of the presentation, including the reference to forward looking statements. Our presentation also includes references to non gap financial measures. Please refer to the reconciliation to gap contained in the appendix.

Joining me this morning are David Slater, Executive Chairman and CEO. Chris Zona, President and COO and Jeff Jewell, Executive Vice President and CFO. So with that, I'll go ahead and turn the call over to David.

Thanks, Todd and good morning, everyone. And thank you for joining during today's call. I'll highlight our key accomplishments for the quarter and discuss the constructive market fundamentals driving demand across our footprint. I'll then turn it over to Chris and Jeff to review our commercial activity, project execution and financial performance and outlook.

So with that midway through the year, we continue to execute our focus strategy while delivering strong results. The organization is firing on all soldiers, giving us confidence in our full year plan and the future. We're successfully converting strong demand from LNG, power generation and data center development into new commercial opportunities and organic growth across our footprint. And with today's announcements, we have now commercialized 60% of our 3.4 billion organic project backlog with more than 80% of this being committed to pipeline projects. The momentum we're seeing across our business is underpinned by durable market fundamentals that will support growth for many years to come. The market environment continues to reinforce the critical role of natural gas infrastructure with both domestic and global demand growth, highlighting the importance of reliable, secure and affordable energy supply.

A study released earlier this year by the Inga Foundation concluded that North America will require over $1 trillion of new pipeline infrastructure investment over the next 25 years, highlighting the significant need to connect supply to growing demand centers and supporting the strong investment thesis in natural gas pipeline infrastructure in North America. Internationally, growing LNG demand and ongoing supply disruptions are favoring US source LNG exports as a secure and reliable procurement strategy.

We continue to believe this dynamic will support additional LNG related infrastructure investment along the Gulf Coast, creating expansion opportunities across the natural gas value chain, including on our Haynesville system. Natural gas also remains the most reliable and affordable domestic energy source available at scale and plays a critical role on supporting future power demand growth. Our interstate gas pipeline footprint is strategically located to serve this growth, and we continue to advance multiple opportunities across our systems supported by these favorable market fundamentals.

I'll now turn it over to Chris to walk you through the commercial activity and construction projects that are converting this demand into growth across our footprint.

Thanks, David. Good morning, everyone. As David indicated, the second quarter was another active quarter for us commercially, and we are announcing today that we've reached FID and approximately $300 million of new organic growth projects from our capital project backlog. Unpacking the new investment projects, the first is an expansion of our Haynesville system, which increases our access to East Texas supply expands our leap pipeline by 200 MMCF per day, and is supported by new long term agreements with two producer customers. The expansion brings total capacity of leap to 2.3 BCF per day through a combination of incremental compression and looping with an expected in service date during the second half of 2028. This project highlights our commercial capability to provide timely competitive customer solutions and the unique advantages of our Haynesville system, which combines premier basin connectivity, direct LNG market access, and efficient scalable infrastructure.

The next project we are moving forward with is the first phase of modernization on Viking, which will improve the reliability of this critical capacity, serving the twin cities in Minnesota, and is expected to be in service in Q4, 2028. This investment reflects the continued modernization opportunities we see across our interstate pipelines with the first phases of Guardian and Western advancing his plan, including the recent FERC approval of the filing for Guardian Phase 1.

During the quarter, we also executed a new long term gathering agreement, supporting a 100 MMCF per day expansion of our Appalachia gathering system, which will be in service in Q4, 2027, delivering supply into nexus in Texas Eastern. This is a demand based contract reflecting growing producer activity in the region.

Finally, we commercialized another new interconnect on nexus this quarter, which will have a capacity of 380 MMCF per day, and will provide supply for a natural gas fired power generation facility to power a new data center in Ohio. This is the first phase of our program, which is the first phase of our program and our ability to commercialize these, all of which are supported by long term contracts in durable customer demand. Looking beyond today's announcements, we continue to see a robust set of future expansion opportunities across our footprint.

Projects such as the missed expansion on our Midwestern pipeline, and vector 2030 expansion are advancing through the commercialization process. And we remain encouraged by ongoing customer discussions and the demand outlook supporting these opportunities. On missed specifically, we see the project likely coming in multiple phases with southbound and northbound expansions. We are advanced in the process of commercializing binding agreements with the next milestone being a binding open season.

Overall, these opportunities reinforce our confidence in the long term growth potential around our assets reflected in our capital project backlog. And we will keep you updated as we continue to move them forward.

Turning to our construction projects, we successfully filed the FERC 7C application for our Guardian G3 expansion project in June, and all of our other in-flight growth investments remain on track and on budget.

Finally, operationally for the quarter, total gathering volumes for the Haynesville average 2.2 BCF per day, an all-time record throughput on our system for a quarter. In the northeast, volumes average 1.38 BCF per day.

Looking ahead to the third quarter, we expect Haynesville volumes to be in line with the second quarter, and northeast volumes to be lower due to timing of producer activity. I'll now pass it over to Jeff to walk you through our quarterly financials and outlook.

Thanks, Chris, and good morning, everyone. In the second quarter, we delivered adjusted EBITDA of 305 million, representing a 3 million decrease from the prior quarter. Our pipeline segment results were 14 million lower than the prior quarter, driven by seasonally lower revenues from our joint venture pipelines and higher revenue on Stonewall. Gathering segment results were 11 million greater than the prior quarter, reflecting higher volumes on blue union.

Growth capital investment for the second quarter was 86 million, which is in line with our plan, and we expect a ramp in growth capital over the balance of this year. As you look to the second half of the year, we expect the third quarter to be in line with our full year guidance, but to be lower than the strong second quarter. Driven by maintenance across our gathering network, and as Chris noted, northeast volumes are expected to be lower due to timing of producer activity.

We are confident in our full year outlook, and thus are reaffirming our 2026 adjusted EBITDA guidance range and our 2027 adjusted EBITDA early outlook. The new investments that reached FID this quarter will increase our 2026 and 2027 committee capital to approximately 425 million in 2026, and approximately 560 million in 2027. Our balance sheet is very healthy and in a strong position, with two of the rating agencies recently raising our leveraged downgrade thresholds, Moody's from 4.0 to 4.25 times on a proportionate basis, and FIDCH from 4.0 to 4.5 for an on balance sheet.

Finally, today we also announced that our board of directors approved our second quarter dividend of 88 cents per share, unchanged from the prior quarter, and we remain committed to grow the dividend in line with adjusted EBITDA. I'll now pass it back over to David for closing remarks.

Thanks, Jeff. So in summary, we remain confident in delivering on our guidance, continuing our strong track record of disciplined execution, while advancing organic growth opportunities across our footprint. Our team is executing well, focusing on our customer's growing needs, which our high-quality pure-play natural gas pipeline portfolio is positioned to serve. A long-term outlook for natural gas infrastructure in North America remains highly constructive, supported by growing energy and power demand, and the increasing need for reliable, affordable, and secure energy.

And with that, we can now open up the line for questions.

Good morning, Theresa. This is David. And I'll start, and Chris, maybe you can jump in and fill it in a bit. But I'd say I'm just going to elevate the conversation for a second and just remind everybody, you know, we're focused on the customer need. And the customer need is the ultimate driver, so that the man growth and the timing of that man growth is the driver behind the commercialization timeline for missed.

I think as Chris alluded, and I think as we've discussed in the past, the project seems to be phasing into a southerly and in orderly type expansion. In terms of size, scale, Chris, maybe you want to add a little color to that?

Yeah, sure, David. I would say that it's a bit early here for us to really disclose anything related to size and scope of that. I mean, as David mentioned, you know, we're really focusing the customer needs, and I think in our view remains, you know, the first phase could be in service as early as in a 20-29.

But again, that's all going to be dictated by what the customer needs are. And commercialization process, you know, we are working on the binding precedent agreements, and that's going well. I'll just say, you know, given the amount of demand in the area, we remain very encouraged by, you know, what we're seeing in the conversations that are ongoing.

So I think that's kind of what we said today. Yeah, Theresa, I think we've said in the past, and maybe I'll just reiterate it here, is that from size and scale perspective, I think we've always compared this to G3 is something similar in size and scale is G3. But like Chris said, this is very fluid. And as it crystallizes, or as the missed rises, we'll give you more detail. So stay tuned.

The can just help clarify to what extent you see missed and Borealis as complimentary versus competitive over the long term.

Yeah, I think that here's how to think about it, Theresa, is that Midwestern is the is the last mile to the load center. And the one benefit or positioning that Midwestern has in the market is has multiple supply sources into that pipe. Right. It's a North South pipe Chicago to Nashville. It can be fed by Vector. It can be fed by Alliance.

It can be fed by Rex. It can be fed by Texas gas, and it can also be fed in the South by Tennessee gas. So we've got a very diverse supply path. Optionality that's embedded in the pipeline. That's one of the features that makes this asset very attractive from a customer perspective. A lot of supply optionality and flexibility.

So that's how the pipe operates today. That's how I expect it will continue to operate in the future. So we're somewhat agnostic to the supply pathway. You know, so if Borealis commercializes, that's great. We would expect that that would add additional supply to the southern end of the system.

Rex does an expansion. That's great too. It'll put supply right in the middle of the system. And obviously we're working on, you know, a vector expansion that put supply on the north end of the system. So that's a feature that I think puts us in good standing with the customers in terms of as they look at developing. And as the demand grows, obviously customers want to have multiple supply optionality to serve their demand and Midwestern offers that.

Good morning, Jean Ann. Great question. Beacon is sourcing its supply from Millennium, a point called Ramapo on Millennium. So, you know, we're very supportive of the Beacon Project as that project commercializes those shippers are speaking directly with Millennium to bring incremental supply to the receipt point on that project. So, you know, you can almost think of the two projects as tandem projects. They're very complimentary to each other.

So, I think the short answer is yes is Beacon commercializes that's going to drive incremental opportunity on Millennium.

And then as the gas pipelines and the Permian come online over the next couple of years, there could be a lot more Permian gas coming to the LNG corridor. Is there some risk that you see that maybe less hands will gas will need to go to the LNG than was previously thought and more will kind of go towards the southeast. And does that change your outlook for getting to the full for BCFD on on leap over time?

I think our view on the Permian is supported by some of our actions here over the last couple of years where we've been really intentional about enhancing our connectivity to Carthage. So we believe Carthage will be one of the landing zones for Permian gas as it pushes easterly. And the Permian gas is chasing both LNG demand, but it's also chasing domestic demand as well.

So that, you know, the expansion that Chris talked about this morning is going to enhance our connectivity to Carthage. Kind of for the reason that you just described. You know, in terms of the demand growth over the next five to 10 years, it's incredibly robust. And it's going to need all of that Permian gas and it's going to need significant incremental hands full gas.

So we're in a, you know, a robust demand environment right now where all basins will need to grow. And I believe that will drive opportunities across the entire, you know, pipeline ecosystem.

Good morning, Spyro. I think it's as simple as the projects that we FID. You know, we give two years forward detailed view of the capex and what you're seeing here on that slide is really the portion of capex related to those projects that we announced today and how much of that falls in 26 and 27.

Yeah, that's an interesting question. I mean, I'm probably going to repeat what I said earlier is that, you know, for existing infrastructure, it's kind of like real estate. Location, location, location. Right. So where the demand manifests, if you're the asset in the ground that's nearest to that demand, you're going to have an advantage.

And, you know, so again, I view Midwestern is sort of the last mile to the demand where the demand is manifesting, you know, how the supply navigates to Midwestern is to be determined. And as I said earlier, the big advantage that Midwestern has is that it's not married to one supply pathway. So you don't have to sign up for the big ticket for lack of a better word.

You know, you can you can take out the last mile, you have lots of supply optionality, and then you can sort of diversify your supply sourcing strategy.

So that's the way I would think about it, and how things evolve upstream of Midwestern back into the various basins. I think those dominoes are yet to fall.

Yes, and yes, I think that's how I framed it probably two quarters ago it's, you know, size and scale similar to G3 on a lot of different metrics.

Do you think I guess G4 could start to get commercialized later this year once the utilities update their plans or is that more likely a 2027 event.

Yeah, I think if you, if we talk about kind of that Wisconsin, that greater Wisconsin market. They're following a very rigorous regulatory process right now. I think, you know, I would point investors to that regulatory process. And I think, I think you're saying it correctly that we're somewhat of a derivative of that regulatory process. So, yeah, I mean, I think you said it well.

And, you know, that that's a fairly true statement across our footprint. You know, when I, when I look at slide eight in our deck, you know, our entire asset footprint is kind of lit up like a Christmas tree right now. And I we've never seen that before. While we've owned these assets, it's just such a strong demand poll market environment right now. And the regulatory processes that are unfolding across all these states across our entire footprint are very foundational to, to our assets and all these expansion opportunities, whether it be what's happening in New England, in New York, or our conversation here about Wisconsin, what's going on in, in Michigan, Ohio, it's, it's all being kind of framed and driven around the regulatory processes because the vast majority of our demand poll interest is coming from, you know, regulated entities.

So, it's a very exciting time. Those investments, once they move through the regulatory framework are incredibly durable. And, you know, we're very excited about what's unfolding right now around our footprint.

I think I would say, you know, based on the project here, we, that we just announced on the expansion on the Haynesville system. And it's pretty clear that, you know, the optionality that we have from the supply side and the Gulf Coast market access, you know, with leap. In the ability to expand that in these bite size increments, right? I don't need huge obligations here to incrementally expand that is very attractive to the market. And, and I expect that's going to continue going forward as well.

I will say this on the volume side. Again, you know, we see and run volumes of our Haynesville system. You know, there'll be some, some producers of the client, but there's a lot of other producers that are going to keep their volumes high and actually achieve a little bit of growth. So we're going to be flat and going into Q three. And Adam, I don't see that changing right now. Again, you know, we've got all of our customers forecast baked into our guidance here and I don't see material changes to that.

It's really Wisconsin and Iowa. We need to monitor and observe the regulatory process there with the utilities. I think, like I said earlier, we are a derivative of that activity.

Yeah, you're asking me to look in the crystal ball again, Jeremy. I mean, we are very bullish. What's happening in that part of the country right now, but I don't want to get ahead of it. You know, I think if you if you observe and I know you do, you observe the utility conversations very closely. I'd say the market share that we were able to acquire through this round of expansions, I would expect we would be able to hold a similar market share in the next round of expansions.

Maybe that's the way I'll, I'll describe it, but I don't want to get too far over the horizon to try to predict the exact numbers or size and scale. I can tell you that the capital costs of projects are going up over time, not down, but we'll let the demand crystallize first in those geographies. And then we'll we'll look forward to the competition to get our fair share of that demand.

Maybe if we just turn to next is here, seems like a pretty, you know, good size interconnected as you talk them up to the quarter. If you could just remind us, I guess, where the pipes at capacity wise, where it could go to in the future and how we should think about, you know, I guess growth, even a growth in the future here.

Sure. So, you know, the capacity of the pipe today is about 1.4 BCF per day. And the pipe is effectively fully contracted today. There are some shorter term contracts that roll every couple years, which, which has an excess in this enviable position. Is one of one of, you know, maybe the only or a hand of very limited available capacity out of the Appalachia basin that's available to be contracted for longer term. Nexus sits on probably the vast majority of that. So it's in a pretty attractive spot. So, you know, we've been sort of working that Northwestern Ohio market.

You know, bringing the man to the main line. You know, that's step number one is get it connected to the main line. Step number two is, you know, then provide service to that demand center off the main line. So it's again, that domino effect where you just do the first step, you know, get the last mile connected and then that demand comes on the network. And then over time, you're going to generate opportunities on the network to service at demand.

So that's really been the strategy. In terms of nexus in particular, you know, we can expand nexus quite easily with compression. Just to remind the audience, you know, I think when we built the asset eight years ago, we did not construct one of the compressor stations, but the yards there, the, you know, the headers are sitting there. So we're in a really good position to drop incremental compression on the asset to expand it.

And, you know, we would hope that as we monetize the existing capacity that's available to be monetized long term, that that would be step one, step two would be triggering an expansion.

So the market is ripening. I'll say it that way. And I think we want to just be strategic and patient as we address the market demand that's materializing.

I'm going to pass someone over to Chris because I don't know the answer to that.

Yeah, no, good question. I know our current capacity, we've really re-subscribed, but I'd have to go back on some look and see what's coming up in the next 24 months. I don't have that in front of me here, but I would tell you this in our last renewal period, you know, we had a lot of contracts that were year to year, you know, very short term. You know, we did some tariff model for K. We modernize our tariff on Midwestern and the subsequently to that, you know, we were basically five to 25 year extensions. And so I'll say this, my expectation is that the market completely understands the value of that capacity longer term and I expect my renewal tender to continue to increase in term.

And I think that's the way that I would look at it.

Yeah, Midwestern is a great example of the value of assets in the ground. And the fact that we had one customer in particular, one at 25 year renewal on their contract capacity is a strong indication of what's evolving in the market area. And how, you know, some of these assets, they truly are irreplaceable. And if you did replace it, the cost would be three, four X versus the asset that's in the ground today. So the market is acknowledging that and recognizing that. And, you know, it's like I said earlier in the call, it's just this incredible demand poll opportunity that's manifesting across the entire footprint. And again, we just need to be thoughtful and strategic about how we contract into that strong demand poll.

You know, a lot of the market support and then and the market need is going to be again, utility based. So I would view. I think we'll respect you for market support to look very similar to G three as well.

With Haynesville supply and or, you know, maybe helping to reroute some supply coming from farther west. Yeah, that's that's a really perceptive question, John, and that's a question strategically that we spend a lot of time thinking about. So number one, thanks for asking it. And I'm going to maybe elevate that question a little bit to kind of make the point is that if the forecasters are even close to right. There's like 30 to 40 BCF of demand that's going to manifest in North America over the next 20 years.

And that's going to, you know, cause all the current basins to have to dispatch and, you know, lift the production, right? So that's Appalachia, that's Haynesville, that's Permian, that's probably other basins as well.

So how do you get that supply from those basins to where the demand is? That's a material uplift in demand that, you know, it sort of goes to my opening remarks on the Inge Foundation study. That was the purpose of that study was to try to, you know, understand that at the macro level and understand the magnitude of the investment required to achieve that and serve that demand reliably.

So it will drive expansions on major, you know, interstate pipe freeways out of these basins. We obviously want to participate in that either directly with our assets or potentially with other new projects. So that's very much strategically on our mind and on the agenda. It's very early days to talk about that, but I can assure you that that is one of my top priorities and Chris is smiling right now. So he understands that that usually means I'm talking to him a lot about this. So we're super excited about about that. I mean, that is probably the, you know, the footprint is lit up right now. What we aren't showing is what you're asking, which is how do you get that 30 BCF of incremental production from where it's going to be produced to where it's going to be consumed?

That obviously is going to drive some very large incremental investments potentially drive incremental new pipelines in addition to expanding existing pipelines. So super exciting time. We're just still really early in the game on that, John. So I'll just leave my comments there. We're very focused on that, but it's still very early. And that is an opportunity set that is yet to be eliminated.

Contractual support and commitment. And you know, we're going to run through, you know, the full blown regulatory process. And if we look back to the last to a decade ago, the last time we did this, like with Nexus or with Rover or with, you know, Mountain Valley, well, maybe we don't want to talk about Mountain Valley, but it's a multi year, you know, journey to go from concept to commercialization to actually construction and turning the valve.

I always remind everybody that Nexus was conceived in 2011 on a napkin. And we didn't turn the valve, you know, it was seven or eight years later when the valve turned. So these projects can take a long time to percolate and mature. But the demand, the demand is showing up. The market is real. And as the demand shows up, the forces of supply and demand kick in.

And, you know, these projects are going to start to percolate and going to start to, you know, become real.

And, you know, it's probably, you know, quickest is three to four years is the way I would say. So your estimate is pretty much spot on that the earliest these projects could click in is, you know, early 2030s.

Yeah, that's an interesting question, Teresa. And it's only because you're a favorite analyst that we let you back on. I'm just kidding here. But yeah, if there is additional consolidation, you know, what do I think about that? The highest level that shrinks the competitive landscape. You know, we're very confident in our competitive position and we're not afraid of competition. And, you know, I guess if the landscape shrinks.

That's one less competitor that's on the playing field. But, you know, we're in an environment right now where where everything is growing, right? So it just feels like we're not in like a consolidation M&A environment right now. Right now we're, you know, I'll speak maybe for DTM. You know, like I said, the, you know, the opportunity set, the organic opportunity set that's presenting in front of us is as robust as I've ever seen in my entire career. So, you know, we're super focused on commercializing that. That adds a lot of value to the equity very quickly.

So M&A in this environment is just it's a higher bar. I'll just say it that way. It's a much higher bar to do M&A in this environment.

So I guess those are my thoughts on consolidation at the highest level.

Well, thanks so much for joining us today. These were just a series of great questions, some really good macro strategic questions. I think the message here is that we continue to experience an incredibly robust market. And we so much appreciate our investors and your interest and the support that you've had for us over the years. So thank you very much and have a good day.