Good morning, and welcome to Sanchez Midstream Partners Fourth Quarter 2017 Earnings Conference Call. My name is Roco, and I will be moderating today's call. [Operator Instructions] I would now like to turn the call over to Chuck Ward, Chief Financial Officer of Sanchez Midstream Partners. Mr. Ward, you may begin.

Good morning and thanks for joining us. With me this morning is Gerry Willinger, our Chief Executive Officer; John Happ, our Senior Vice President of Marketing and Midstream. Just a few quick notes before we get started, we released our fourth quarter 2017 earnings report this morning and additionally we plan to file our 10-K today after market close. The earnings release along with our latest investor presentations are and will be 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 like to turn the call over to Gerry Willinger.

Thanks Chuck. After years of planning, focused investment and the strategic divestiture of non-core producing assets, we successfully completed the transformation of SNMP to a midstream master limited partnership in 2017. As part of this transformation, we completed an extensive capital program, improved our existing asset base, completed and expanded the Raptor Gas Processing Facility, developed the SECO Pipeline, and positioned the partnership to achieve free cash flow heading into 2018. The Raptor Gas Processing Facility a joint venture that is 50% owned and operated by Targa Resources Corporation began commercial operations in June 2017 with 200 million cubic feet equivalent per day of processing capacity. That was expanded in the third quarter of 2017 to capacity of 260 million cubic feet per day. We developed our wholly-owned SECO Pipeline on a parallel path with the completion of the Raptor Gas Processing Facility. The SECO Pipeline was brought online in August 2017 connects to the Raptor Gas Processing Facility and provides 400 million cubic feet per day of capacity to transport dry gas to multiple markets in South Texas. These assets together with Western Catarina Midstream and the Carnero gathering line pipeline had joint venture with Targa that feeds the Raptor Gas Processing Facility on the basis of our midstream strategy in South Texas and provides stable fee-based cash flow to support our continued growth. As we look to expand our strategic position in South Texas, we have made a concerted effort to reduce the partnership's exposure to production activities which by their nature are sensitive to commodity prices and less suited for our business model going forward. To that end, we closed the sale of our remaining operated Oklahoma production assets in July 2017 for approximately $5.5 million. Well recently in November of 2017, we closed the sale of certain nonoperated production assets in Texas for approximately $6.3 million. We intend to pursue additional strategic divestitures of producing assets with an artwork continuing to expand the contribution of our fee-based midstream activities. With the completion of Raptor Gas Processing Facility and the SECO Pipeline, our fourth quarter 2017 adjusted EBITDA more than doubled when compared to our adjusted EBITDA for the first quarter of 2017. As a result, our cash available for distribution in the fourth quarter of 2017 was approximately $9.9 million which covered our distribution on common units by 1.5 times. Importantly, although our total capital spending in 2018 is expected to be considerably lower when compared to 2017, we continue to see opportunities for cash flow growth this year. Our South Texas midstream assets are strategically positioned to capture upside from the development activity of Sanchez Energy at Comanche and Catarina and we anticipate increasing volumes through our facilities in 2018 and the years to come. Having posted 8 consecutive quarters of distribution growth, we elected this quarter to hold our distribution flat. This decision which we do not take lightly comes as the capital markets increasingly favor coverage and balance sheet strength over growth. As a result, it is apparent that the capital markets are not rewarding the partnership for its current distribution stream let alone increases in our quarterly distribution. As evidenced by our distribution coverage ratio, we believe we have sufficient cash flow to consider distribution increases in the future. However, until such time that the capital markets become less restrictive, we believe it is more prudent to use excess cash flow to reduce debt, further improve the partnership's balance sheet and internally finance growth. And now, I’d like to turn the call over to Chuck Ward.

Thanks Gerry. Our revenue totaled $18.7 million during the fourth quarter of 2017 including total revenue for the fourth quarter as revenue from the Western Catarina midstream system and the SECO Pipeline of $16.2 million as well as another $6.1 million from production activities. The balance of the partnership's fourth quarter total revenue came from 4,000 in hedge settlements, and a non-cash loss on mark-to-market activities of about $4 million. Operating expenses during the fourth quarter 2017 totaled $17.2 million which includes $2.9 million in operating expenses related to the midstream assets and $2.1 million in production-related operating expenses and taxes. Fourth quarter G&A in unit-based compensation expenses were $6.5 million and includes $3.1 million in unit-based compensation and asset management fees both of which are non-cash items. As a result of this performance, our adjusted EBITDA for the fourth quarter 2017 was approximately $21.4 million. After backing out $2.75 million at interest and maintenance CapEx and $8.75 million in preferred distributions, we generated $9.9 million in cash available for distribution which then results in a 1.5 times common unit distribution coverage ratio for the quarter. We currently have $189 million in debt outstanding under our credit facility which had a borrowing base of $249.3 million and elected commitment amount of $200 million. The midstream portion of our borrowing base is approximately $211 million which results in the partnership's midstream collateral more than covering the current commitment amount. Our borrowing base was last set in the middle of the last December in conjunction with the normal redetermination cycle. With the results we presented today, we’ll undergo another redetermination we’ll update the market upon receiving those results. For the full year 2018, the partnership has hedged approximately $0.5 billion cubic feet in the natural gas production and in effects NYMEX fixed price of $3 per MMBTU and approximately 260,000 barrels of crude oil production at an effective NYMEX fixed price of approximately $60 per barrel. The partnership has additional hedges covering a portion of its production through 2019 and 2020. More information on our hedges can be found in our 10-K or in our investor presentation on our website. And with that overview of our results, we'd now like for the moderator to open the line for some questions.

[Operator Instructions] And today's first question comes from TJ Schultz of RBC Capital. Please go ahead.

I think just first for CapEx or kind of project focus this year, just trying to get an idea where your focus is moving forward is it more processing frac expansions on some of your assets. And I know you’ve talked about water or how much room on existing assets do you have to capture some of that expected volume growth you mentioned in the prepared remarks?

Yes, certainly we have embedded growth through the pipelines that are attached to Comanche and Catarina going to Raptor. Obviously, we're looking to keep here after full of the 260 so incremental growth will be going beyond that and potential of expanding those positions. As we look at capital going forward I’m going to turn over to Chuck, we will be looking to provide better guidance going out. I did significantly lower than it was in 2017 as of course we’re building a plant pipeline and couple of other things, but I’ll turn it over to Chuck.

We haven't come out with our 2019 plan on capital yet. We've been busy working on that plan and we've been working on waiting some other results to do that, but our goal is to be out before the end of the quarter and roll-out a full 2018 forecast plan and capital forecast.

I guess just lastly on - on the distribution. I certainly understand the decision to keep it flat here sequentially, but if you stay at this type of yield would you still want to continue even the current payout if you really not getting credit for it just kind of wanted to get your thoughts on the distribution going forward?

Yes, our current plan is to continuing our distribution. We currently don't see any need to certainly stop it. We’re not in the equity markets today. We're not really focused on share price, we’re focused on delivering our business plan which is continuing to delever the balance sheet which currently sits at 2.5 times and going to continue to grow cash flows. We really I mean we’re sitting back and looking at our stock price it continues to, we feel like we’re trading actually below asset value, but like I said we're not in the equity markets today. We can’t control what’s going on with swap positions across the street. We can only control, we can control and that is producing cash flow getting volumes through our system and growing. So we don't have any changed plans on what we’re looking to do in the future today. But certainly we evaluate opportunities and if we have an opportunity to add a high rate of return asset in the mix, we’ll look at doing that and contemplate at that time. So on how to finance it. So that's really where we look at the world. It's sort of status quo until it’s not status quo any more, but we always look for opportunities to grow. And we always look for accretive acquisitions, an accretive development projects to increase or cash flow.

And our next question today comes from Colton Bean of Tudor, Pickering, Holt and Company. Please go ahead.

I think you'd highlighted that pro forma for the South Texas sale you would have only non-op remaining in the portfolio on the production assets side. Is that correct and if so are you having ongoing conversations or just any updates you could provide there would be helpful?

We also still have the marathoner operator EWI assets and then we have a couple of other select positions in South Texas in a couple of non-ops, really small non-ops in Oklahoma and - option Oklahoma will be hitting the market through online platform here shortly. The South Texas are actually in the middle of the process right now and EWI is where we're examining a couple different alternatives with a select group of parties on that currently. I think to us the important part is we kind of bridge this past we're - from a balance sheet perspective and earnings generation perspective. We think and feel and look and our financed on a go forward more like a midstream than somebody who is kind of in the middle of a transformation or somebody who even a few years ago started this primarily at upstream entity.

And I guess this may be a little bit unfair before the 2018 budgets so I understand if you can’t comment too much but as it stands is it fair characterize - the 2018 capital budget as largely attributable to wealth next or is there any other ongoing project considerations we should be thinking about?

We think it could be much more downstream and incremental processing gathering further after the assets.

And so I guess you guys had mentioned previously that you wanted to get a sense of what the upstream trajectory looked like in year ago and you're going to consider resizing the scope of some of those potential projects including the fractionation, the processing. Should we expect that to be included in the 2018 updates maybe a revision to some of those project scopes?

That's correct.

And our next question comes from Matt Schmid of Stephens. Please go ahead.

The JV earnings look very strong, I mean looking at it looks like about 3.5 million of equity earnings and then 3.5 million of distributions in excess of that. How should we think about distributions going forward, I mean is that a fair base or were there any sort of one-time or timing issues in the fourth quarter?

Sure, I think a good way to think about that is for relative to the JV to look at a combination of say the third and fourth quarter, really and after it became fully operational during the course of third quarter. And so you kind of got a blended rate there. There is a little bit of timing as we have the first kind of full quarter of operations that did arrive during that last quarter in 2017. So I think a blended rate between the two is probably a little bit better for our run rate, but if something we guide to - look to guide to more specifically when we come out with our 2018 guidance.

And then maybe it's probably might be fair to wait more for guidance for this too, but I mean just think about the existing asset base right now. What’s kind of the opportunity for incremental growth - through just increased utilization. Just thinking about the plan based on the plans that Sanchez Energies put out there?

So if you think about it in general, I mean we always say with Catarina specifically at a 50 well per year drill pace. There's about six depending on timing right, there is about 6% to 10% volumetric increase coming out of the Western Catarina system depending on timing. Obviously if we’re running the plant at 264, we will be looking to expand beyond 260 for additional growth. These plants, their nameplate being 260 we potentially run them a little bit higher. But if we see significance amount above that 260, we will be looking to expand processing capacity, as well as generate capacity coming from Comanche assets. So we look at growth in a number of ways. We look at growth from both the Catarina system, additional volumes coming from Comanche that can better utilize pipe and infrastructure, and then downstream from the current processing capacity to add additional capacity or additional takeaway from SECO. So those are the ways that we will look to grow without significant CapEx in 2018 but the checks that will come out with our budget by the end of the quarter.

The next question comes from Sunil Sibal of Seaport Global Securities. Please go ahead.

Most of my questions actually been hit, but I was just trying to understand one of the operating parameters that was in the press release. On the gathering and transportation throughput and the press release indicated 21,500 million cubic feet. I was just kind of curious is that through the Catarina system or is there some impact of that from what you're getting in the Comanche to?

That is only through the Catarina system.

And then how much was - at what capacity was the Raptor running on an average for the quarter?

Raptors run nearly full for the entire quarter.

So 260?

Yes, I would say it never runs quite at 260 sometimes it's little above nameplate sometimes a little back of nameplate depend upon the weather, depend upon some things - the plants have been in full service for less than six months and the upgrade and sizing for less than three. I think there’s some more [indiscernible] during the course of the quarter. But yes it's been running essentially for - its 260 on a blended rate, right.

And our next question comes from Georg Venturatos of Johnson Rice. Please go ahead.

Nice execution through this growth process it’s good to see. Coverage back up and 1.5 times was as well ahead of what we were looking for. I wanted to touch on the midstream expansion side and the strategic effort you've talked about as it relates to you know kind of reducing that production exposure going forward? Just wanted to get your thoughts as, obviously optically it's beneficial and probably helps compress that valuation discount we're seeing versus the group to downsize that part of the business. But given that it still is contributing EBITDA, would you be in a position where you necessarily have that parlay in conjunction with an attractive kind of investment on the midstream side to recoup that lost EBITDA or how would you think about that going forward?

I think the ideal world Georg is where an asset becomes available for us to acquire in midstream that's using our bolt-on assets our volumes as an asset to buy at the same time as we have somebody who's offering dividers for upper-stream assets at the same price. That's the rotation of course that we would ideally like to shoot for. And I'd say that's actually kind of what we are working towards.

Yes but sometimes - yes as you can imagine timing is and always perfectly aligned. So I think in our comment that was our stated goal our stated goal is to continue to reduce the producing asset exposure which we have done it’s a significantly lower portion of our overall cash flow today. And as we expand the midstream footprint going forward we'll certainly look to rotate out of producing assets at the right price.

And then on throughput I know you guys mentioned you were basically up at 260 for Raptor, but could you provided us may be with exit rates for Catarina and what SECO was from a throughput perspective?

So SECO runs about in the 80s on an effective throughput from a revenue standpoint but we have not provided guidance - tariff on that. When we did our 2017 guidance we gave an estimated adjusted EBITDA contribution. So I think until you have the 2018 guidance it will be tough to figure out how to model that, but it really takes dry gas on the back of Raptor that's not going for other for other obligations that SN and maybe the working interest partners have. And then for Catarina really I'd say, I guide you to looking at essence, Catarina production numbers that's always the best source. And they generally come out with their operating update before we come up with our quarterly results.

And then on the revolver side, can you remind us timeline or expectations on a potential redetermination there?

Right after we filed the K, some of those numbers to the bank group for the midstream portion of the redetermination and expect that that's not usually much more than a couple weeks out.

And our next question comes from Scott Fowler of Truckers Advocate, Incorporated. Please go ahead.

My question has to do with expanding on the previous question related to cash distribution and your realistic feel for the potential of a cut with it maybe later this year ended 2019. Just because you see your focus is basically to pay down the debt with the excess cash, as you're leveraged it roughly 2.5 times on the balance sheet. And with the current distribution and the past increases not being favored or appreciated by the capital markets, the concern is that this direction opens up the greater opportunity to cut distributions. Could you please elaborate on this?

Certainly our goal is to increase unitholder value and to pay the distribution is always something we're focused on. Since we initiated the distribution, we paid back $4.28 since the end of 2015 into distribution. So being one of the largest shareholders at the Sanchez Group as any holders we always want to continue the distribution. It is not something that we would do just to take lightly and play with the distribution. That's not what we're saying. I think we're saying as our 2.5 times levered debt to coverage ratio is probably the lowest in our peer group by a full term. We would like to utilize our balance sheet to continue to grow and to increase shareholder value is the way we're focused on it. We're not seeing those signaling any form of distribution cut at all. We're signaling ways to grow the unitholder base and the unitholder value incrementally and accretively. And so we will always look at those opportunities to do something that's accretive and has generally positive returns for our unitholders base. So I wouldn't take anything like that as a single that we're planning to cut or anything like that. What I would say is that we're fully interested in growing our unitholder value and as we've done in the past and continue to look forward in the future.

And ladies and gentlemen our next question comes from Jay Abella of Investment Partners. Please go ahead.

If we could maybe focus on G&A instead of distribution cuts, I'm wondering how you guys are thinking about going forward with respect to possibly reinstating distribution increases at the expense of G&A, what room do you have there and if you have any room, when are we going to see some additional decreases in the G&A? Because I remember when you guys are putting this MLP back together again, we were looking at a considerably lower run rate on G&A then we're experiencing now. And so, I've been kind of expecting this to come way lower over a period of time and kind of surprised that it hasn't. So look forward for hearing for the comments? Thanks.

Jay as we sit here, you know again I'm getting completely away from distribution costs. We're not cutting it. The conversation hasn't been around cutting. The conversation has been a question of what is the best thing to do in the capital markets whether it can continue to grow the distribution or not has been the focus. And what is the best way to enhance shareholder value. Sitting here at 1.5 times coverage ratio, we're currently absolutely positioned to continue to grow the distribution in light of where we are on a balance sheet if we choose to do so in light of other capital projects going forward. So you know it's going to be a wait of internally generated cash flow to draw projects. From a G&A standpoint obviously we're transitioning, continued transition from producing to finish that transition, but as we look to grow, or continue to grow our midstream effort, I think we've done outstanding job of keeping our G&A in line and continue to drawing our leverage down. So I'm not expecting anything significant change from a G&A standpoint going forward right now other than lowering G&A that's related to our producing assets which is where the savings will come from. But sitting here at 1.5 times coverage and looking for accretive projects is where we're going to be sitting and evaluating obviously what the distribution growth looks like going forward from here.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Chuck Ward for any closing remarks.

Well, thanks again for joining us this morning and we look forward to catching up with you when we come out with our guidance in our next quarter results.

Thank you, sir. Today's conference has now concluded. We thank you all for attending today’s presentation. You may now disconnect your lines. And have a wonderful day.