Good day, everyone. Welcome to the Sanchez Midstream Partners Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that today’s event is being recorded. I would now like to turn the conference over to Mr. Chuck Ward, Chief Financial Officer of Sanchez Midstream Partners. Please go ahead Sir.

Good morning and thanks for joining us. With me this morning is Gerry Willinger, our Chief Executive Officer; and Pat Sanchez, our President and Chief Operating Officer. Just few quick notes before we get started, we released our third quarter 2017 earnings report this morning and we will file our 10-Q later today. The third quarter earnings report is available on our website, www.sanchezmidstream.com. The discussion this morning will include forward-looking statements, which are subject to certain risks and uncertainties. These are described more fully in our documents on file with the SEC, which are also available on our website. And finally, we will use non-GAAP financial measures in this morning's discussion to help our unit holders and the investment community better understand our operating performance. Our earnings release is available on our website and includes an appendix that reconciles these non-GAAP financial measures to GAAP measures. And with that, I would now like to turn over the call over to Gerry Willinger.

Thanks, Chuck. The partnership's third quarter 2017 results reflect the successful culmination of years of strategic planning and investment in South Texas. The Raptor Gas Processing Facility, a 50% joint venture with Targa Resources Corp. that was conceived in 2015, had its first full quarter of operations and was consistently operating at or near its capacity by the end of the quarter. During the third quarter 2017, we also completed construction of our wholly-owned Seco Pipeline, which started delivering dry gas to multiple markets in South Texas beginning in August of 2017. These midstream assets, along with the Carnero gathering line and the Western Catarina Midstream system, provide a stable stream of fee-based cash flows to the partnership, form the basis of our midstream growth strategy in South Texas and complete our transformation to a midstream-focused master limited partnership. As Targa recently announced, the expansion of the Raptor Gas Processing Facility from 200 million cubic feet per day to 260 million cubic feet per day of processing capacity was completed after the end of the third quarter of 2017. We anticipate that the utilization of the higher capacity will positively impact the partnership's fourth quarter 2017 operating results. More importantly, with the Seco Pipeline and the Raptor Gas Processing expansion project now complete, the partnership has funded the vast majority of its 2017 capital spending and expects to generate free cash flow in the fourth quarter of 2017. In conjunction with our focus on midstream activities, we continued to divest certain of our non-core production assets in the third quarter of 2017. In July 2017, we closed the sale of our remaining operated Oklahoma production assets for approximately $5.5 million. More recently, we closed the sale of certain nonoperated production assets in Texas for approximately $6.3 million. In anticipation of closing the latest sale, we repositioned certain of our oil and natural gas hedges during the third quarter of 2017 and in the process received $3.6 million in net proceeds from the counterparties on those hedges. With the increase in operating margins from our midstream activities, we anticipate that the asset sales will have no impact on our borrowing capacity, which is currently based on lender commitments totaling $200 million. Given the transitional nature of our business in the early part of this year, during which a number key projects were in various stages of completion, we fully anticipated the first half of 2017 would be challenging in terms of our capital – use of capital resources and financial results. While we have successfully completed several projects and divestitures since the middle of this year, the third quarter of 2017 was not without its challenges. Operationally, we faced unprecedented levels of rainfall and flooding along the Gulf Coast due to Hurricane Harvey as well as major flooding from localized storms in the Western Eagle Ford late in the quarter. Notwithstanding, since the first quarter of 2017, we have grown our quarterly adjusted EBITDA by approximately 68% or roughly $7.2 million. With the additional cash flow expected from the expansion of the Raptor Gas Processing Facility and the completion of the Seco Pipeline, we currently forecast a distribution coverage ratio in excess of one times for the fourth quarter of 2017. Additionally, our South Texas assets are strategically positioned to capture upside related to production from the Comanche and Catarina assets operated by Sanchez Energy, and we anticipate greater volumes through our midstream facilities in the years to come. We continue to evaluate opportunities to secure additional midstream capacity to accommodate production from the Comanche asset and look forward to growing along with Sanchez Energy as they continue to execute their strategy in the Western Eagle Ford. And now I'd like to turn the call over to Charles Ward.

Thanks, Gerry. Our revenue for the quarter totaled $18.6 million. Included in total revenue for the third quarter 2017 is revenue from Western Catarina Midstream system and Seco Pipeline of $14.2 million and $6 million from production activities. The balance of the partnership's third quarter 2017 total revenue came from $5.2 million in hedge settlements, which includes about $3.6 million related to the hedge repositioning in August 2017, and a noncash loss on mark-to-market activities of about $7 million. Our operating expenses during the third quarter totaled $15.5 million, which includes $2.8 million in operating expenses, again related to the Western Catarina Midstream system and the Seco Pipeline; and $1.9 million in production-related operating expenses and taxes. Third quarter 2017 general and administrative and unit-based compensation expenses of $6.2 million included $2.1 million in unit-based compensation and asset management fees, both of which are noncash items. Our adjusted EBITDA for the third quarter 2017 was approximately $17.8 million. After backing out $2 million in interest, $600,000 in maintenance CapEx and a little more than $8.7 million in preferred distributions, we generated $6.4 million in cash available for distributions. We currently have $189 million in debt outstanding under our credit facility, which has an elected commitment amount of $200 million; and a borrowing base in excess of that amount. As a reminder, our borrowing base is comprised of two parts: a midstream component and a production component. With the new adjusted EBITDA contribution from the Seco Pipeline and the Raptor Gas Processing Facility, including its expansion, we expect to see significant increase in the midstream component of our borrowing base, potentially providing us with additional capital flexibility to continue funding our growth. The production component of our borrowing base is currently in its semiannual redetermination, and we look to update the market upon completion of that process. As noted previously, during the quarter, we reduced the volumetric exposure of our hedge book in anticipation of yesterday's sale for the properties in South Texas. In connection with that reduction, we received about $3.6 million in proceeds, and the resulting hedge book for the balance of this year through 2020 reflects our target of hedging about 80% of our forecast exposure to oil and gas. The details on these resulting hedge positions will be included in the Open Commodity Hedge Position portion of the 10-Q we'll file later today. With that overview of our results, we'd now like to turn the call back over to the moderator to open the line for some questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first questioner today will be Matt Schmid with Stephens. Please go ahead.

First, on the Seco Pipeline, I know how much the spend was even before the third quarter. But maybe could you provide some color on what the ultimate construction cost of that pipeline was and the expected sort of run-rate EBITDA contribution or potentially return target on that?

Sure, Matt. Back when we had – came out with, I guess the S-1 before, we indicated a total construction cost range in about the $32 million range. I think we've still got some invoices tagging in as we finished up and are examining a couple of issues with one of the vendors. But that remains to be in the target. Again, going back to our original guidance also for the year, we indicated about a $4 million run rate for the last three quarters of the year, so that'd be a little bit over $1.2 million per quarter. And that remains our guidance on run rate for Seco contribution to adjusted EBITDA.

Okay, great. thank you. And then maybe a little more broadly, just thoughts on developments at Comanche. I mean, it looks like at Sanchez Energy, there are some encouraging tests in the lower Eagle Ford. As that inventory grows there, how are you thinking about potential growth opportunities longer term?

Well, certainly, we took the first phase of growth opportunities with Targa by expanding the capacity at the Raptor facility from 200 million to 260 million. We expect that there'll be an additional need for capacity for processing and takeaway as that – as the Comanche project continues to develop that we are evaluating on a daily basis. And so when we look at it, we fully expect to grow along with the volumes. Right now, we're in the process of scoping how – exactly how much processing capacity, how much takeaway we actually need looking out five years, 10 years, 15 years. And once we do that, we’ll come back with a better number for you guys on exactly what we think the takeaway will look like.

Okay. Great, thanks. That’s helpful. I appreciate the color.

And the next questioner today will be Georg Venturatos with Johnson Rice. Please go ahead.

Good morning, guys.

Good morning, Georg.

First, I think probably worth mentioning really impressive execution here through the first part of 2017. I know there are a lot of growth projects in the fall there, so very nice to see everything coming online on time and budget. So just wanted to mention that. In terms of gas processing at Raptor, I know we’re obviously up to 260 million now, with the Targa announcement a few weeks ago and what you guys reiterated. Just wanted to get a better sense of what was baked in to the fourth quarter. As you mentioned, north of one times coverage target; how much of a contribution are you going to get from that additional 60 million? And where do you think utilization on that 260 million can be kind of as we enter 2018 on a run-rate basis?

So Georg, I think – I guess I’ll start by going back to originally kind of our guidance that we gave for the year, in which we forecast that Raptor would provide, net to SNMP’s interest, about $1.4 million a quarter, and that was based upon the kind of 180 million out of Catarina and 130 million to Carnero and the Raptor plant rate. So if we’re at 130 million a day, it gives us about $1.4 million a quarter. I’d love to believe that it’s pro rata proportionate. However, I think the Comanche rates, a little bit lower on the rate for processing there. So I think the max is probably $2.8 million a quarter. Targa runs those things pretty lean, so we kind of see a little bit better operating cost forecast than what we saw there. But I would say some – if you take the $1.4 million and pro rata it and probably dial it down a hair, that’s probably not a bad rate. We’ll get actually very granular, like we did in the details for this year’s guidance, when we do the 2018 guidance and break that out probably between the Catarina portion and the Comanche portion.

Okay, okay. Appreciate that. And then this may tie into the 2018 forecast as well, but any update you can provide us just on current run rate on the gas side throughput at Catarina relative to the 170 million to 190 million a day range you guys had talked about for the year?

No, I think – in fact, I think, at last Thursday’s operational update, we were at the low end of that range on the dailies. I think that guides – certainly, SN has talked about different things happening between the balance between Catarina and Comanche. We always don’t want to front run SN and let SN talk about production on their side and manage their investor group. So I think we’ll stick with it, and that range provides a still good guidance for the fourth quarter. And then we’ll – in 2018, I think it’s going to be important for us to actually break down this forecast between those two regions, and we’ll obviously pivot off of how SN provides guidance to the market in the future as well.

Okay, that makes sense. And last one for me. You all touched on a little bit earlier, in Gerry’s comments, on just strategically what you’re thinking about doing when – as you’ve got excess production, which was a good thing to have. But when you look at adding midstream capacity, can you maybe remind us of kind of, if you were to do it on the build side, what your kind of targeted multiples are on the processing and transport side?

Yes, historically, on the build side, we’ve been ranging between sort of a five times and six times multiple of EBITDA when construction is complete and all the run rates are in place. The back side, obviously, if we were to buy stuff, things are a little bit higher than that. So we prefer to do things on our own short cycle build times because we can get, obviously, things at a lower multiple and expand cash flow. All the projects that we are looking at follow those same trends. If it’s a build project, it’s looking for something in the area between five times and six times EBITDA coming out of the gate on a pro forma basis, and buys are a little bit higher.

Got it, that makes sense. Thanks, Gerry.

[Operator Instructions] And there looks to be no further questioners, so this will conclude the question-and-answer session. I would like to turn the conference back over to Chuck Ward for any closing remarks.

Well, everybody, thanks again for joining us as we present the third quarter results. We look forward to speaking with you again very soon as we conclude the next quarter and discuss the next phase. Thank you.

And the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.