Good day, and welcome to Sanchez Midstream Partners Third Quarter 2018 Earnings Conference. My name is Sean and I will be moderating today’s call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded, and if you object to such recording, you may disconnect at any time. 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 today is Gerry Willinger, our Chief Executive Officer; and Pat Sanchez, our President and Chief Operating Officer. Just a few quick notes before we get started. We released our third quarter 2018 earnings report this morning and plan to file our 10-Q after the market closes today. Our third quarter 2018 earnings release is available on our website, www.sanchezmidstream.com. Our 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 some non-GAAP financial measures during this morning’s discussion to help our unitholders and the investment community better understand our operating performance. The earnings release available on our website includes a reconciliation of these non-GAAP financial measures to GAAP measures. With that, I’d now like to turn the call over to Gerry Willinger.

Thanks, Chuck. As we continue to successfully execute our 2018 plan, our fundamental shift and investor sentiment has taken place in landscape for MLPs. The capital markets have moved away from valuing MLPs on yield, and access to equity markets to finance these capital projects needed to grow our asset base and increase long-term value is limited. Self funding of capital projects, strong distribution coverage and low leverage are in focus. With this market shift in mind, we made the decision to set the third quarter 2018 cash distribution at $0.15 per common unit. This resetting of the distribution enhances the Partnership’s financial flexibility, meaningfully increases distribution coverage and repositions us to use cash from operations, to fund accretive capital projects, to repurchase common units over time and reduce debt. The Partnership’s third quarter 2018 adjusted EBITDA of $18.4 million was approximately 4.3% higher when compared to second quarter 2018 and 3.4% higher when compared to third quarter of 2017. As a result, cash available for distribution this quarter was approximately $6.6 million, which covers the new cash distribution on common units by 2.7 times. While the Partnership saw lower-than-expected volumes on our midstream systems during the third quarter of 2018, owning largely to operational issues experienced by Sanchez Energy earlier this year, primarily at Comanche, we are aware that Sanchez Energy has undertaken several key initiatives to improve operations and capital efficiency since the beginning of the year. This includes an increasing capital spending at the core Catarina asset, these initiatives have already resulted in increased production including strong production at Catarina in October of 2018, which we anticipate will positively impact throughput on the Partnership’s midstream assets. Accordingly, we believe we remain within the range of our forecast for the full year and continue to see opportunities for upside in the years to come. Now, back to Chuck for a look at our financials for the third quarter of 2018.

Thanks, Gerry. Our revenue for the third quarter totaled $18.2 million. Of this amount, $14.7 million came from midstream and about $5.9 million came from production, $600,000 was the result of the loss on hedged settlements and the balance of $1.8 million results from loss on the mark-to-market on our hedged book, a non-cash item. Our operating expenses during the quarter totaled $16.9 million, which includes $3.4 million from midstream and $1.9 million in production expenses and taxes. G&A and unit-based compensation for the quarter totaled $5.3 million, this amount includes $2.5 million in two non-cash items, unit-based compensation and asset management fees. Our third quarter adjusted EBITDA of $18.4 million includes $6.4 million in cash distributions from our joint venture with Targa. After backing out the $2.5 million for cash interest expense or $100,000 for maintenance CapEx and $8.8 million for an all cash distribution on our preferred units, we generated approximately $6.6 million in cash available for distribution, which as Gerry mentioned earlier, results in the distribution coverage ratio of about 2.7 times at the new distribution rate. We currently have a $184 million in debt outstanding in our credit facility, which has a borrowing base of $310 million, and 210 million in lender commitments. As noted in our press release this morning, the midstream portion of our borrowing base, which is currently set at approximately $275 million, results in the Partnership’s midstream collateral covering the $210 million elected commitment amount by about 1.3 times. There is no change to our hedge profile during the third quarter. More details on our hedges still can be found in our 10-Q. We continue to work to monetize our production asset position and we did recently close on a small sale of non-operated assets in Louisiana for about $1.4 million. With that overview of our results, we’d now like to turn the call back to the moderator to open the line for some questions.

[Operator Instructions] Our first question will come from TJ Schultz with RBC Capital Markets. Please go ahead.

Thanks. I guess, first, on the gathering agreement, any indication of a need to adjust or look at the rates just as a means to provide any support to the producer?

No. Our gathering agreements are locked in place. We view those gathering agreements when we put them in place as market rates or even below market rates at the time. If you remember, when this was done, there were a lot of commitments rolling off. People had entered into long-term rates at a peak of the market. We were able to come in and price those things pretty tightly and effectively. And we can still continue to see those rates as being effective market rates or below market rates.

And then, at Catarina, just any scenario where the 50 well commitment would change per the lease agreements?

No, not that we see.

Okay. Now, going forward with excess cash, if you can talk a little bit about preference for new projects, if there is something there that you guys see, looking at that versus buybacks versus debt reduction?

Sure. We view this -- with our inability to access capital markets, as we look into 2019, we see a lot of opportunity to add to our asset base and grow. And lot of those opportunities are continued expansions inside the JV that we have at Targa, one, and continued expansion on committed volumes that are being released into or near our systems too. If you look back in time when we originally talked fractionation in the field in 2016, we’re continuing to see that opportunity exists, particularly with the fractionation volumes in Mont Belvieu being constricted, storage being tight, new Permian volumes coming in, all of the major players on the NGL side looking to eject ethane at the plant. That infield fractionation is becoming more and more important and highlighted. So, certainly, we’re going to be looking at those opportunities to expand inside of our JV in the very near term on one side. And then, the other side is to expand -- continue to expand our platform to reach into certain markets and offer offtake to those in the field, including the third-party volumes that we currently have embedded with the working interest partners. So, we see some very near-term capital projects to add to our asset bases that are accretive to cash flow over time. And it really sets up nice to be able to just access that capital from our balance sheet as opposed to pricing in the market, which is currently unavailable to us.

[Operator Instructions] Our next question comes from Georg Venturatos with Johnson Rice. Please go ahead, Georg.

Gerry, you touched on this in the previous question. But, just can you maybe help us kind of frame up where you see some of the potential multiples of these growth project opportunities? And you alluded to the fact that they would be accretive but just kind of a general range where you see some of those in the near-term, where can you utilize some of that free capital from the distribution or reduction?

Yes. Certainly, accretion is a relative term, obviously. But with our balance sheet and excess cash that we now have, we view that there is a lot of potential in this environment also when it comes to broader opportunities across the states, particularly around the Gulf Coast. As we’d express, probably a lot of times in the past, all the Permian pipelines, all the Gulf Coast assets that currently exist are going through a state of flux. We currently have those committed volumes, particularly coming from the working interest partners and SN to be able to extend in those markets and leveraging the new projects. And so, when I look at new projects and new builds, we’re certainly looking at things in the range south of 8 times for that project. And that cash flow that we generate is certainly looking to be above a 15% rate of return when we look at industry projects. But, as they develop, we’re looking to lock in those commitments, we’re looking to develop certainly below 8 times, we’re looking to have a development bridge to get a more market multiple into our stock. We see the market multiple ranging from anywhere from 9.5 to 12 times on gathering and processors. We just think there is a lot of opportunity exists to expand our asset base, continue to extend in our assets base as production grows through the Eagle Ford and volumes continue to come from the Permian.

I know Chuck alluded to a small production sales, I think it was around 1.4 million. But just wanted to clarify that was subsequent to quarter, so we will see that flow through next quarter. And then also just wanted to get your thoughts on -- an update on just kind of what’s left on the production side, on the EWI side, just for everyone else’ reference, and then what’s kind of potential longer term strategy with those assets?

Yes. The remaining production assets are the Palmetto EWI and the Maverick EWI, and then a really small operator portion in Louisiana. The small operated portion in Louisiana is pretty sticky. We’ll probably end up writing that out. The Palmetto and the Maverick, as we hold those, if there were to be a sale of those assets through SN, we would participate alongside. Our position outside of the sale by SN would be a little bit difficult to do because it’s EWI. But other than that, that’s all that’s left in that portfolio.

[Operator Instructions] At this time, I would like to turn the call back over to Chuck Ward for any closing remarks. Please go ahead, Chuck.

Well, thanks again for everybody for joining us on the call, as we talked about this quarter’s actions. And we’ll look forward to catching up with you guys again pretty soon. Thanks.

This will conclude today’s conference. Thank you for attending today’s presentation. And you may now disconnect.