Q3 2019 Earnings Call

Good morning.

My name is Allison and I will be your conference operator today.

At this time I'd like to welcome everyone to the third quarter 29, <unk> earnings release and operations update.

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I would now like to turn the conference over to Richard Robot Oasis much strange CFO to begin the call friends.

Thank you Sir you may begin your conference.

Thanks, Allison welcome everyone. This is Richard Roebuck and today, we're reporting our third quarter 2019 financial and operational results. We're delighted to have you on the call I'm joined today by Taylor read and Michael Lewis as well as other members from team. Please be advised that our remarks on both a waste petroleum and waste midstream.

Partners, including the answers to your question include statements that we believed to be forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different and that's currently disclose our earnings release conference call.

Those risks include among others matters that we have described in our earnings release as well in our filings with the Securities Exchange Commission, including on annual report.

On Form 10-K , and our quarterly reports on Form 10-Q .

We disclaim any obligation to update these forward looking statements. During this conference call. We will also make references to certain non-GAAP financial measures and reconciliations to these applicable GAAP measures can be found the earnings release and on our website.

We'll also referenced our current investor presentation, which you can find on our website that I'll turn the call over to Taylor.

Good morning, everyone.

And thanks for joining our call.

Oh, we'd start today by highlighting a handful of key points.

First of all these operational strength was demonstrated during the quarter puts throughput was at or above guidance levels across most commodity strip.

Water was particularly strong fueled by our sponsors activity as well as third party.

Which accounted for 50% of about two quarters.

Covers exceeded our guidance remain on track to deliver operational financial guidance for 20 my team.

Second the team continues to have success, including third party agreements in both the world stuff in the Delaware.

We recently signed a crude gathering deal in the Delaware in a water gathering disposal deal in the Williston.

The team has done.

It's really done an outstanding job securing attractive customers to leverage our footprint.

Improving our financial outlook in diversifying our revenue stream.

We hit a huge milestone in the third quarter with approximately 20% of old P. EBITDA coming from third party.

We expect to see a similar level in the fourth quarter as well.

Third well one p. executed final agreements November for the dedication of certain Delaware acreage from Oasis petroleum to old P for oil and water.

His dedication or Panther death care was a huge went for both parties and demonstrates our supportable, one p. unit holders.

Finally, I want P. remains a uniquely attractive investment opportunities.

The combination of peer leading distribution growth.

Improving coverage.

Double digit yield represent a compelling value to investors.

Greatly exceeded expectations since going public and look forward to continued execution.

Third quarter, we reported distribution coverage of two times.

Sequential improvement from the 1.7 times on P. generated in the second quarter.

We grew our distribution, 5% versus the prior quarter consistent with our targeted 20% annualized distribution growth rate.

Our gas complex has ramped up nicely over 29 team.

I think a strong combination I've always said and third party business.

Over the third quarter third party volumes approximated 32%.

Big Corns total volume.

We expect throughput to continue to increase in the fourth quarter.

As you've heard through various operators this year.

Natural gas processing in <unk> processing in the Williston basin remain high.

North Dakota gas production grew to a record three Bcf a day in August .

Basin gas possible processing at that time.

Total about 2.7 Bcf per day.

[noise], we continue to remain active with multiple parties regarding additional opportunities.

If we see to reduce overall flaring in a will spend while capitalizing our strategic investment.

In the Delaware our position is situated at the heart of industry activity in close proximity to several several regional oil.

We signed our first third party deal this quarter and we we have a great opportunity to do a lot more.

As we looked at the fourth quarter of 2019, we're maintaining our distribution coverage expectation of 1.9 to two times.

With that I'll now turn the call over to Michael to go a little more detail or operation.

Thanks Taylor.

Oh lumpy remains focused on executing our plan and adding value to it you know holders.

A significant amount of our sponsors activity continues to be directed toward LMP dedicated areas, which is expected to drive solid financial performance for the fourth quarter and beyond.

Additionally, as Taylor mentioned, we continue to bring on incremental third party business, which is becoming a meaningful part of our cash flow.

I'll give a bit more color on the third quarter before diving into fourth quarter projections.

Big corn, both crude and gas volumes were at the top end of guidance during the quarter, reflecting strong activity from our sponsor and third parties as well as high utilization.

At our gas complex the team did a great job of getting the gas processing complex back up and running and position us for a great back half of 29 team.

At the Bobcat devco volumes were at or above guidance for natural gas and water.

And at Beartooth water volumes significantly exceeded the top and.

Guidance, reflecting a continued strong contribution from our sponsor and incremental third party volumes.

Turning to capital we've trimmed our 2019 budget.

About 7 million at the midpoint.

Even when including some addition of cap or related to new third party business.

The reduction reflects strong cost control.

Total capex net on P is now expected to range.

Between $197 million to $206 million.

I won't be finalized the Panther devco arrangement with financial impacts beginning around November 1st our Capex range reflects a four year Panther spending at all on P., including reimbursing our sponsor.

[noise] looking to 2020, we would expect gross capex to drop by about 40% from 2019 levels without the inclusion of capital for incremental third party deals.

This means previous implied gross capex guidance of approximately $170 million moves down to approximately a $130 million.

Net to own P. This could be in the 80 million dollar range.

Lastly execution against our capital arrangement with a waste is in Bobcat is proceeding as expected and Olympian increased interest in the bobcat devco to 34.4%.

At the ER versus 32.5% at the ended the second quarter.

We have not decided to continue to bobcat arrangement in 2020, yet but away says in LMP will be in discussions in the coming months about extending that opportunity.

With that I'll hand, the call over to Richard.

Thanks, Michael I'm piece natural position remains compelling and our cash generation continues to ramp up behind our sponsors activity and third party agreements closing of our Panther Devco in the Permian enhances the financial outlook made a minor adjustment to our full year EBITDA guidance range largely adjusting for the timing of Panther from September .

To November we remain on track to deliver 20% annualized distribution growth target.

Third quarter distribution, being 51, and a half cents per unit.

As of September Thirtyth, 2019 that that the third quarter annualized EBITDA, two and half times and we continue to forecast maintaining similar leverage ratio at the at year end, particularly as 100% of the path or Capex hits on P. in the fourth quarter.

Our revolving credit facility is currently $575 million committed with the ability to further increase commitments to $775 million.

In closing, we're happy about own piece results this quarter and look forward to delivering strong performance into the future that I'll hand, the call back over to Allison for questions.

Thank you we will now begin the question and answer session.

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At this time, we will pause for a moment, so somewhere a roster.

Our first question today will come from Jeremy Tonet O.J.P. Morgan. Please go ahead.

Good morning, just wanted to start off with a distribution growth question here given that Oh in key it's been yielding more than 10% for some time here.

And that a waste it doesn't seem to be growing a ton in the Bakken going forward from what we can see just wondering if that's still makes sense to grow at these levels I mean, it seems like it really just benefits the IDR. Some doesn't help the LP unit price at this point is there a situation where it makes sense to lower debt or to buy back units instead.

Yeah. Jeremy This is Richard Yeah, Yeah, I think we've talked about that and in the past and continue to think that it's actually been a like that growth rate has been on the back of the company doing a great job.

Diversifying their revenue stream. So you've seen the company go from Yeah, basically no third party EBITDA at a 20% in the third quarter and saying that.

Out into the future as well and so.

Yeah the.

The growth in a you know the IDR as had been a compelling tool for from Peter.

To do out to do it set out to do I think as we look out on a future. It is something were yeah.

It is something that's not doesn't necessarily make a lot of sense. When you are yielding where we are yielding and paying yeah and growing the way we're growing so I think well, we'll revisit that but I think the the other thing I'd add is the balance sheet is really right, where we're happy with it Theres no I don't we don't see it yet any great need to.

Yeah start trying to de lever through changing the growth rate, but yeah, I think that the other pieces. We continue to see growth into 2020 from an EBITDA perspective, and and see our ability to to support that coverage or that on the growth if needed.

That's all for me Thanks for taking my question. Thanks, Jeremy.

Our next question today will come from Crawford carpets Tudor Pickering Holt. Please go ahead.

Hi, guys. So as a waste is increasingly directs activity outside of Wild basin can you leverage the existing processing build out or is all knowing about vision processing spoken for by third parties.

Yeah, Yeah. That's a great question I think a the way we think about as we've got our years of inventory remaining and wild basin.

But you're saying yeah like continued completions happening on the bear the bare too yeah footprint, which is obviously helpful. As we continue to outperform on that piece of the business. Yeah, we do have the ability.

Actually kind of capture upside as as as we move as we look forward in the future the ability to capture Oh and asset position that south and to the east of the wild basin position and bring that into the gas plant and then as we look further to the west we actually believe there's there's opportunity to bring.

<unk> incremental acreage in activity out into the future back into the processing plant and we feel like there's you know what went on a name plate basis that 320, a day of capacity.

There is it that ability to continue to add from where we are now.

To the gas processing complex and so there is actually is the ability to tip to supplement volumes with incremental oasis volumes as well as third party as the team continues to try to attract new customers.

Okay got it. Thanks, that's helpful and Kinda last one for me you know if voices production growth moderates more toward the a flat volume profile out sort of the Delaware, how should we think about own p. growth capex going forward I wouldn't maybe trending closer to a maintenance capex level.

Yeah, Yeah as you get into yeah, Yeah, a couple of couple of years from now I think you'll see our yeah like Michael articulated on the on the prepared remarks that you'll see capital coming down dramatically year over year I think you don't see it 2021 step down yeah as well.

And yeah, Oh, it's the starts to move into other areas you might see yeah, the bear to capital tick up a bit where it whereas some of the wild basin type capital would would come off a bit and then obviously like you understand your you'll have a pretty.

Steady similar capital program as you marched through time and the Delaware as we capture those that volume growth.

Got it thanks, that's it for me thanks.

Well.

And our next question today will come from Paris Hammond.

I'm in General <unk>. Please go ahead.

Hi, Good afternoon are good morning still at thanks for taking my questions.

First question it seems like you're having a good success on the third party front is the is the but now it's about 20% of EBITDA is that happening at a faster pace than what you'd expect it and then Furthermore, as you look out beyond 2020, do you think that this could become even more meaningful overtime.

Yeah pairs thanks for.

For the question.

Yeah, I think that.

What we've seen since our IPO and 17, what we talked about was that we hadn't focused much on the third party side, our commercial team has done an incredible job signing up.

Customers across all commodities in the Williston and get us to this 20% number it's in line with what we expected at the beginning of the year work continues to have really good momentum to continue to grow that over time.

And as we are just starting up with the Panther Devco now and the Delaware, we're starting to gain some traction on opportunities there as well.

So we feel really good about the commercial side and and how we're continuing to grow third party volumes across both basins.

Great and then my follow up might be a harder one to answer but last quarter Taylor kind of talked about that maybe olympias not quite as strategic to always says as it had been more at more so edits formation.

And so accordingly, you all might have been looking at some opportunities to further JV or maybe Philadelphia co or whatnot and then obviously in cap is become a bit more active as it pertains to Oh, yes. So what does all that that mean or does that mean, there's no options on the table for for Jvs and.

Things like that for the year ahead.

It just you know the front part about the strategic nature. We did you know the comments we made were.

Really focus more around a wild basin and obviously that's a good you know a huge part of the asset base at this point.

And.

You know getting the processing in place to capture all that gas plus the third party gas.

Well have used strategic importance with this with all the flaring laws.

In North Dakota, I would say that.

That a you know that it's in places fulfilled but it also has some strategic imprint on on the other parts of the basin that Richard talked about as we.

As we move out now all all that being said.

Yeah, you know or.

As we talked about during the last call we're considering.

A range of options Oh on the business and it could be in the.

The form of a JV could be.

All the way to put out right sale, but it could be a continuing to operate this and grow this business on on a go forward basis. So there's really a.

Range of opportunities, but the you know the great news for us.

Is that yeah, we get from.

A no fledgling business and in 2015 to one on a gross basis now that.

That's going to generate in $260 million range of EBITDA. This year. So it's turned into a you know you as part of our business both for.

For on P. outright, but also in supporting the parent as well.

Well, thanks Taylor for that helpful color.

Oh.

Ladies and gentlemen, this will conclude our question and answer session.

And at this time I'd like to turn the conference back over to Taylor for any closing remarks.

Thanks Allison.

In closing third quarter results were strong across the board and our financial outlook remains solid.

Ceded expectations since our IPO and the outlook remains attractive.

Thanks again for joining the call today as oils always we will make ourselves available for any follow up questions. You may have.

The conference has now concluded and we thank you for attending today's presentation. You may now disconnect your lines.