Ladies and gentlemen, thank you for standing by. And welcome to the Altus Midstream Company First Quarter 2020 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 to your speaker today, Patrick Cassidy, Director of Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us on Altus Midstream Company's first quarter 2020 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 discussions will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss today. 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 the first quarter, provide an update on the operating environment we're facing and offer an outlook for the year ahead. First, I would like to thank the Altus team for their commitment to operating safely and efficiently in light of the coronavirus pandemic. Our team continues to operate with dedication and focus despite these new challenges. Their safety, as well as that of their families, is our top concern, so we continue to monitor the situation closely and adjust our practices accordingly. The COVID-19 pandemic has presented an unprecedented challenge for the global economy and has put the supply and demand of oil and gas more out of balance than we have ever seen before. The good news is that Altus is well positioned to meet these headwinds. We have no upcoming debt maturities. Our revolver extends through November 2023 and provides ample liquidity to meet our foreseeable investment needs, and we expect to begin generating free cash flow upon the start-up of Kinder Morgan's Permian Highway Pipeline in early 2021, at which point, our ongoing capital requirements will be minimal. Our priority is to maintain a strong liquidity position through this downturn, and we are confident in our ability to do so. Unlike many other midstream companies with single-basin G&P assets, Altus has a portfolio of assets comprised of G&P and long-haul pipes that provide a diversified cash flow stream. Our interests in oil, NGLs and natural gas and are supported by a mix of minimum volume commitments, acreage dedications and walk-up volumes. These assets continue to perform well even in the current low commodity price environment, and we are pleased with their overall performance. I'll start by discussing highlights from our…

Thank you, Clay. First and foremost, I'd like to reiterate Clay's comments around our team, and thank them for their extraordinary efforts and commitment to operate safely and efficiently in these uniquely challenging times. As noted in the press release issued yesterday, Altus reported a first quarter net loss, including non-controlling interests, of $27 million. This included $62 million related to an unrealized embedded derivative loss, which reflects a technical accounting revaluation of the embedded derivative in our preferred units due primarily to volatility in interest rates at the end of the quarter. There is no impact to the company's ultimate redemption price of the preferred units. Excluding this and other small items, Altus generated first quarter adjusted EBITDA of approximately $46.5 million. Gathering and processing throughput volumes for the period averaged 577 million cubic feet per day, down 9% compared with the preceding period. The volume decline is related primarily to reduced operator activity at Alpine High, including some voluntary curtailments in March due to low NGL and Waha prices. Approximately 75% of first quarter volumes were rich gas. Given the persistence of low prices through most of April, we have seen additional curtailments in the second quarter. As Clay mentioned, this is a dynamic situation, and we are working with Apache on a daily basis to manage throughput during this volatile commodity price environment. Based on past well performance following production curtailments, we believe these processed production variances are a deferral of revenue to Altus and not a permanent loss. Thus, we anticipate a lumpy G&P volume profile during the year as Apache responds to commodity price signals. Capital investments in midstream infrastructure during the quarter were approximately $90 million. This included $83 million for our JV pipeline projects, comprising capital calls for ownership in EPIC's crude line…

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

Yeah. Thanks, guys. I'd like to start off with the cost cuts. Clay, it sounds like more to come there so realized details might be light. But can you provide a sense of where you're looking to extract more cost cuts? And maybe just general timing around when you think you can deliver on that?

Yes. Thanks for the question, Spiro. And as I stated in my previous comments, we had some really good cost savings between the third and the fourth quarter of 2019, and then we had the follow-on in the first quarter of 2020. We continue to look for items where we can reduce costs. And part of it's just coming from a debugging mode of the plants as we brought those on last year and starting to debottleneck and make sure that we have the most efficient operations out there. Our staff is better trained. They understand what the plants can and cannot do. So part of it is just getting more efficient, and we're seeing efficiency gains every day. With that said, we have a major item that we think is going to be very helpful from an expense reduction standpoint, and that is the conversion of our - our residue compression right now is mostly fired with natural gas, but we also have electric residue compressors that are on-site. The plants themselves use a lot of electricity that's all been generated, and that's all been gas-fired generation. So we've made efforts in the first quarter to convert over from the generated power that we have on-site and also to convert our residue compression to electric compression, and that will greatly reduce our operating and maintenance cost. So we see that as a big plus from an OpEx standpoint. We think that's going to be a good reduction. I'm not going to try and quantify that today, but we have expectation that we'll see a great deal of that in the second quarter as we bring the compressors on, the electric compressors on in April, so we'll get a lot of benefit from that in May and June once we've worked the bugs out of that in April and then follow-on quarters. But we think that's going to be a big reduction, not to mention the fact that we're just getting better at what we do. We - the team has identified areas where we can save expenses on down the line, and so that's something that we're excited about. So we haven't stopped. We're not in a status quo mode. We think this is an area where we can improve, and that's just going to benefit us from an EBITDA standpoint as we go forward. And that's not something that we have projected. We're not trying to put that benefit forward. That's something that we'll realize, and I think that will be upside and part of the reason for the upside that we have in our EBITDA guidance.

Okay. That's encouraging to hear. Switching gears a bit. Ben, thanks for your comments on Apache's curtailments here earlier in the year, helps explain some of the move in the guidance. But I guess on the go-forward, how are you assessing any sort of incremental shut-in risk at this point? Obviously, hearing a lot about widespread shut-ins in the Permian. But you guys are obviously gassier, which I'm sure changes the calculus and NGLs have generally held up pretty well relative to crude. So it would seem like maybe the risk is not as high. But just curious how you're thinking about it.

Yes. It's a good question. I think as we look at it, it is dynamic. We work with Apache. And given that Alpine High is a rich gas play, it is tied to both NGL prices as well as the Waha price. And we've seen the strengthening in Waha over the course of the last four to six weeks. And that's taken into consideration by Apache as they assess the economic viability of each well out at Alpine High, a mix of both Waha and NGL prices. And so NGL prices got depressed, I think, in the March time frame when ethane got down to $0.08 or $0.09 and propane was in the kind of low to mid-teens, and they've since recovered. And so it just gets to the point that I made, we all know that the forward curves on all those are very volatile and unpredictable, but it's just going to lead to a lumpy profile. The good thing is that we've got a good integrated team out there. The plants are very nimble and able to withstand either ethane rejection, ethane recovery and the ability to ramp volumes up and down pretty seamlessly. So it is a team effort. The team did a great job in the first quarter. I mentioned too in my remarks that in early April, there were also some curtailments as well, and you just kind of have to see how the year unfolds. The reason I said that we really think of it as a deferral of revenue as opposed to a loss is because you may recall that there were some curtailments last year as well from Apache when they were leading to the GCX line coming on, which came online in September. And so then throughout the fourth quarter, when the rest of those wells that were curtailed came online, they met and, in some cases, exceeded our expectations as those wells came back from being curtailed. So that revenue came right back to Apache as we continue to gather and process that gas. So it's going to be dynamic, it's going to be lumpy and we'll continue to work it with Apache. I would say that one of the reasons why our guidance for the G&P business was very modestly moved down was because it was a slight deferral of that revenue from 2020 into 2021. So hopefully, that answers your question.

No, no, it does. That's helpful. Really appreciate it. Thanks for the time today, guys. Be well.

Thanks, Spiro. You too.

Thank you. [Operator Instructions] I am not showing any further questions at this time. I would now like to turn the call back over to Clay Bretches for closing remarks.

Thank you, Joel. Before we end, I want to leave you with a few final thoughts. Altus is well positioned to withstand current market downturn and remains financially viable. We have no near-term debt maturities. We have solid cash flow coming from a diversified portfolio of projects and ample liquidity to execute our growth plans. We've adjusted practices to confront the threats posed by COVID-19 and continue to reduce our cost structure. While the economic environment is uncertain, challenges create opportunities. We have a new team dedicated to bringing in additional volumes that make economic sense. Our team and the facilities they operate have been outstanding. The Permian is a resilient basin, and it will come back. As it does, Altus will be there to safely gather process and transport the oil and gas that our customers produce and that is needed by all sectors of our economy. Thank you for listening in to our call. I look forward to sharing with you our progress going forward. Thank you.

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