The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report.
RECENT DEVELOPMENTS
Please refer to the "Financial Results and Operating Information" and "Liquidity and Capital Resources" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information.
Market Conditions and Business Update - We experienced increased volumes in the
first quarter 2022, compared with the first quarter 2021, due primarily to
increased producer activity in the
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Table of C ontents of drilling and completion activity, normal volumetric well declines which are offset partially by rising gas-to-oil ratios, severe weather disruptions, operational outages and crude oil, NGL and natural gas demand. Our Natural Gas Pipelines segment is not exposed to significant volumetric risk due to nearly all of our capacity being subscribed under long-term, firm fee-based contracts.
Recent geopolitical events have disrupted global supply chains and have caused
volatile commodity prices for natural gas, NGLs and crude oil.
See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, in this Quarterly Report for more information on our exposure to market risk.
Natural Gas - In our Natural Gas Gathering and Processing segment, gathered and
processed volumes increased in the first quarter 2022, compared with the first
quarter 2021, due primarily to increased producer activity in the
In our Natural Gas Pipelines segment, continued demand from local distribution
companies, electric-generation facilities and large industrial companies
resulted in low-cost expansions that position us well to provide additional
services to our customers. In
NGLs - In our Natural Gas Liquids segment, NGL volumes increased in the first
quarter 2022, compared with the first quarter 2021, due primarily to increased
ethane production across our system, the unfavorable impact of Winter Storm Uri
in the first quarter 2021 and increased production in the
Ethane Production - Price differentials between ethane and natural gas can cause
natural gas processors to extract ethane or leave it in the natural gas stream,
known as ethane rejection. As a result of these ethane economics, ethane volumes
on our system can fluctuate. Ethane volumes under long-term contracts delivered
to our NGL system increased approximately 105 MBbl/d to an average of 460 MBbl/d
in the first quarter 2022, compared with 355 MBbl/d in 2021, due primarily to
changes in ethane extraction economics. We estimate that there are more than
225 MBbl/d of discretionary ethane, consisting of more than 125 MBbl/d in the
Growth Projects - We announced plans in late 2021 to restart construction on our
200 MMcf/d Demicks Lake III natural gas processing plant in the
Sustainability and Social Responsibility - In 2021 and 2022, we qualified for
inclusion in the S&P Global Sustainability Yearbook and received a perfect score
of 100 in the Human Rights Campaign Corporate Equality Index. In 2021, we
received an MSCI Inc. ESG Rating of AA, were named to
Dividends - In
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How We Evaluate Our Operations
Management uses a variety of financial and operating metrics to analyze our performance. Our consolidated financial metrics include: (1) operating income; (2) net income; (3) diluted EPS; and (4) adjusted EBITDA. We evaluate segment operating results using adjusted EBITDA and our operating metrics, which include various volume and rate statistics that are relevant for the respective segment. These operating metrics allow investors to analyze the various components of segment financial results in terms of volumes and rate/price. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. For additional information on our operating metrics, see the respective segment subsections of this "Financial Results and Operating Information" section.
Non-GAAP Financial Measures - Adjusted EBITDA is a non-GAAP measure of our financial performance. Adjusted EBITDA is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, allowance for equity funds used during construction, noncash compensation expense and certain other noncash items. We believe this non-GAAP financial measure is useful to investors because it and similar measures are used by many companies in our industry as a measurement of financial performance and is commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA should not be considered an alternative to net income, EPS or any other measure of financial performance presented in accordance with GAAP. Additionally, this calculation may not be comparable with similarly titled measures of other companies.
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