Q4 2019 Earnings Call

During the year the partnership also leveraged its previous operational successes and added new third-party customers and the Gathering segment in Midstream added two new customers during the year and Thursday the 4th quarter edition of her dad resources and the DJ which increased our acreage dedicated to Black Diamond by about 50% additionally our Equity ownership and oil pipelines will provide some diversification to our gathering and processing business and generate higher quality more stable cash flows and a few minutes time will provide some additional details on our business development efforts.

Learning to operational Financial results 1st for the full year in 2019. We gathered 322000 barrels a day of oil and gas and 189000 barrels a day of prep water and the DJ and the Delaware Basin both at the high end of our original guidance while gross Capital was ninety million dollars below guidance. We grew throughput volumes forequarter a row and we delivered record oil and gas throughput of $355,000 bail equivalent per day for the DJ and the Delaware basis in Q4. We had record produced water as per me and third party connections picked up in the back the back half of the Year while executing the capital program below the low end of guidance for Q4.

And our wholly-owned DJ Basin assets overall gross oil and gas Gathering volumes were up modestly from the third quarter of nineteen driven primarily by Noble Midstream activity Noble Upstream activities in East County and Wells Ranch Black Diamond volumes increased about 12% to 103000 barrels of oil equivalent per day.

the most

I d. Did not have any new connections during the fourth quarter, but Noble was completing well as in Mustang and we expect to see connections Trend back up and early 2020.

And the Delaware Basin we had another record quarter for groceries and gas Gathering volumes, which grew by 13% compared to the third quarter produced water was also set of record growing more than 25% sequentially often driven by Noble energy activity.

Especially the partnership connected the first two Wells from a new third-party customer in Q4 and then benefited from 9 third-party Wells that came online, you know, literally the last day of the third quarter.

Looking ahead. We expect this momentum to continue into two twenty20 also before hand off to Robin to talk about our 2020 Outlook. I want to leave you with a few comments. We're not resting on our own no cost and execution successes. We're focused on additional savings in 2020 because improved capital and efficiency brings, you know, multi-year benefits and it strengthens our opportunity to enhance reserve unit holders. We remain focused on leveraging our existing infrastructure and expanding our Core Business for both GMP and pipelines and then this year will be an important inflection point wage capital and Cashflow plan. We expect to equity Investments to be largely complete in the first half of 2020 and then expect growing contributions from our Equity Investments throughout the year, including the office announced that horn investment.

And then finally will remain.

Focus on customer service to ensure that we we execute on our plans and alcohol turn the call over to Robins.

Thanks, Brent and good morning everyone. I'm happy to be part of the noble Midstream team and look forward to continuing this operation of momentum that branch is highlighted. As you mentioned. We ended the year on a high note with record em and Gathering business across all product streams combined oil gas and produce water and Gathering and failed throughput was up 10% on an annual basis with significant contributions from both the DJ and walk in basis.

Partnership enjoyed significant success producing its cost structure in 2019 and we will remain focused on efforts to further drive down costs of Route 20 20, and we're already off to a great start off with the release this morning. We reduced our twenty-twenty organic Capital Expectations by 25% or seventy million dollars from the midpoint of our November Outlook.

This decrease comes from continued improvement in our equipment design and Contracting strategy a reduction in pipeline installation costs and the utilization of existing infrastructure. These effects along with capital project deferral has allowed us to significantly reduce our organic capital budget all well connecting approximately the same number of welds year-on-year.

Energy focuses on road development and boat basins and twenty20 the partnership expects roughly three-quarters of the new well connect activity in the DJ Basin to be on adjacent session and 75% off Permian laterals to be less than a mile in length as we leverage the infrastructure backbone already in place this enables us to connect. Well that minimal costs improve returns and reduce operating system.

Our twenty-twenty organic Capital program is largely comprised of well Connections in both stations as well as facility expansion. We plan to allocate a larger percentage of capital Investments to the page and throughout the year while both the d j n Delaware Basin will continue to contribute to Absolute Gathering volume growth in total oil and gas Gathering volumes are expected to grow more than 10% year-over-year.

And the DJ Basin we anticipate two to three completion cruise on average across are dedicated Acres Noble energy has increased activity at its Mustang development and now expects 8290 new wage the area in 2020 as well as twenty to Thirty. Well Connections in Wells Branch

Party activity and volumes and the DJ Basin or forecasted to be slightly higher in 2020 led by the Black Diamond joint venture and the addition of for Dad crude volumes onto the Gathering system Arkham am in the basement and talk to your execution make us a strong partner of choice and we will continue to evaluate new backyard opportunities like this recent example.

And the freshwater segment we anticipate growth volume to increase 20% annually with deliveries to to DJ Basin completion cruise on average during the year for Noble and a third-party customer Thursday in 2020. We will see a positive impact from an increase at our wells Ranch minimum volume commitments which transitions to 60,000 barrels a day this year.

In the Permian Basin we expect Noble energy to operate on average two to three completion cruise and turn in line fifty to sixty. Well in twenty-twenty are third-party business has continued to expand off anticipate at least one third party crew on average and 10 to 15. Well connects this year or Twenty twenty Delaware Basin Gathering volumes will benefit from a full year of operation from all five control facilities are three Northern CGS are connected via super system, which enables us to swing volumes and efficiently manage Peak production from new wells

totally before I pass the time I went to address the Cadence of

We anticipate operator activity to Trend similar to last year with front and waited Investments that generates second half volume growth Noble Midstream will continue to allocate Capital with a focus on return leverage the opportunity to reduce further to further reduce our costs safely optimize performance and enhance transparency around our environmental stewardship efforts home and I'll turn it over to Tom Hanks Robin starting with fourth quarter financials adjusted ebitda was 73 up 22% sequentially driven by the acquisition of noble Energy's interests in the DJ in Delaware basins. Our results reflect full ownership of these Dev codes for half the quarter Epic Center improved service impacted the Partnerships Q4 results with a larger than expected loss of ten million, excluding this impact our business performed as expected.

Epic is positioned to begin full-service late in the first quarter of 2020. We will still experience some softness during q1 from interim service, but expect results to be significantly improved over the fourth quarter.

with

The recent acquisitions digested we are focused on maintaining healthy liquidity. We recently exercised the 350 million accordion feature in our revolver to bring the borrowing capacity up to 1.15 billion. We ended the year with $568 million in liquidity as we move into 2020. We will focus on maintaining prudent leverage while pursuing longer-term financing to enhance liquidity and extend near-term maturities.

2019 was a strong year for the partnership on the business development front are Delaware Crossing asset a JV between LX and Salt Creek Midstream is nearing completion of the main line and has already begun transporting volumes this asset further enhances our position in the Southern Delaware Basin by expanding the Gathering footprint to the wink Hub. This investment provides the partnership with exposure 2008 new third-party customers spanning 165,000 dedicated Acres.

We also made.

Steps towards diversifying our cash flow profile in 2019 by exercising the 30% option and Epoch the epoch crude Pipeline and the 15% option on the Epic. Why grade pipeline?

We also recently announced the exercise of our 20% option in the saddle horn pipeline through our Black Diamond subsidiary. Saddlehorn is an operational pipeline backed by minimum volume commitments from investment-grade producers Black Diamond acquired saddlehorn for $155 million or eighty four million net in BLX. This attractive valuations allowed us to utilize our revolving credit facility while remaining leverage neutral for 2020 as we continue to grow our business these types of high return investments will not only affects the quality of our cash flows, but also allow the partnership to participate further down the Midstream value chain LX can now offer services from well head to water in the Permian as well as provide our customers highly competitive Transportation rates to Cushing.

these capabilities

Please differentiate us from many of our peers. We are proud of the team for their recent accomplishments and are excited about how the partnership is positioned for continued success.

Now on to twenty twenty guidance 20/20 is anticipated to be between $500 and $540 million slightly below the prior guidance midpoint due to the higher the better line of sight on operator activity. We continue to see producers taking a more measured approach to developing their assets. This slowdown has been largely offset by additional customers added to the portfolio during 2019. The Epic crude pipeline is nearing completion and line Phil has begun once the crude line is in full service to why grade line will unpack cleaning and picking before transitioning back to NGL service.

We expect this transition to take about a month to accomplish with the addition of our recent saddlehorn acquisition. We anticipate approximately 15 to 20% of our 2020 ebitda to come from our investments. We currently are not forecasting any distributions from epic in our 2020 guidance.

We have also updated our twenty-twenty investment Capital guidance. We are now anticipating Equity investment of $220 to $260 million an increase of one hundred million from the midpoint of our guidance. This increase was driven by three factors first, approximately Thirty million in planned 2019 investment was delayed to early 2024 Delaware Crossing epic y grade projects.

Second recent commercial success is on Epic by grade have resulted in the f i d of the second track and a propane project to Sweeney. Both of which are scheduled to be funded during 2028 and 3rd due to the increased cost of the Epic crude build out and the results of interim service.

Our distribution coverage was 1.1 times during the fourth quarter pro forma for this transaction. Our distribution coverage was 1.3 times. We anticipate our distribution cover wage 2020 to be between 1.2 and 1.4 times.

Also recently reduced our distribution coverage rate distribution growth rate from 20% to 10% to better align with the current market conditions and to exercise continued Capital discipline felt the 10% growth was appropriate for the underlying business and we remain committed to the long-term return of capital to unit holders. We will continue to re-evaluate the form of this Capital return including the combination of life and growth and unit BuyBacks 420. We expect to average 3.3 to 3.7 times net debt to trailing 12-month.

Looking ahead to the first quarter. We anticipate of 94 to 100 1 million. We expect less Gathering volumes in the first quarter resulting from lower customer activity took the fourth quarter conversely. We expect to see a step up in freshwater delivery volumes in the first quarter as customers have hit the ground running in the new year.

Moving through 2020 we expect to see Gathering throughput and ebitda momentum. We've been cautious in our assumptions around customer activity levels and assumed completion intensity bulb summary are based business continues to perform very well and our our Permian joint ventures are getting ready to significantly contribute to the partnership our business development team has experienced several recent success and are excited about the opportunity set in front of us even still we don't aspire to grow at any cost. We will remain focused on Capital discipline and achieving High project-level returns month. You will see us look to grow only where we are uniquely positioned to achieve outsized Returns on our investments primarily leveraging the existing assets and customer relationships.

we can be selected due to our competitive positioning and two of the

best basins in the country

It will be an exciting year for nvlx. We are on path to grow even reduce both organic and Equity investment capital and improve leverage and distributions and not a lot of Midstream companies can say that with that. I will turn the call over for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question comes from Phil Stewart from school Scotiabank, please go ahead.

Good morning, everyone Robin congrats on your new role.

Brent I think this question is probably for you and and you obviously, you know, you'll touched on it in the prepared remarks, but given that you all are currently currently projecting to hit your leverage ratio and twenty20 just kind of curious how you're thinking about the distribution growth. Now, you know with the stock yielding close to 13% It doesn't seem like you all are getting paid for for that future growth. I'm just kind of curious if you could maybe discuss a little bit more detail how you all are thinking about the different options, you know, whether it be distribution growth longer-term or potentially repaying additional debt below the The Leverage Target or you know, as you mentioned in the prepared remarks a unit repurchase program.

Yeah.

The high-level, you know as we roll through the investment phase on these Equity Investments and our Capital program being front front loaded and then growing even through Thursday. We're going to naturally deliver first of all, and so, you know, I don't think we'll be I don't think we'll be in a position will have to go to be compelled to have to pay down debt. So then the second part of your question, I think on you know, the distribution growth rate is you know, we set that rate as Tom mentioned on the call when we did the drop simplification because we thought the business supported it and we still do I mean we've got, you know, we're pretty close to the plan. We rolled out at that time. And so we still think the business supports that growth rate. But if if over time, you know, if we hear the market in from the market and if she doesn't want to you know to want to support it, then we'll we'll look at a different path. You know, right now we're sticking to it though. We're staying with the growth rate.

Okay, great. Appreciate the color there and then you know, I guess quickly have y'all given any more thought to

You know potential conversion to end up C corporate structure or a full-on C Corp conversion. We have you know, we said at the time of the drop that off we haven't closed out that possibility, you know about you know by doing the transaction. We still left that open as an option down the road. I think we need to continue to analyze it and and make sure we make sure we understand the full merits of it. It's not completely obvious to me that there's a Advantage for unit holders. And so so we'll keep looking at it over time but month, but I think we've made the right call in the near-term to stick with the current structure.

All right, Brian. I appreciate the time. That's it for me.

Our next question is from Pierce Hammond from Simmons energy. Go ahead. Good morning. And thanks for taking my questions and Robin. Welcome aboard good to have you there with my my my first question and you touched on this in the prepared remarks and then in the press release, but if you can provide a bit more color and what happened to Epic and Q4 and is that resolved for q1?

sure, this is

On over here. They were kind of they were basically two items that caused us to have a a different to what we had previously guided to around the Epic project one is it's currently in what we call interim service and under interim service. There's no obligation of any shippers to bring barrels under a traditional commercial Arrangement. However, when we switch to fully commissioned service in March all of the commercial agreements that sit at 6:00 will come into effect and the shippers are required to bring the barrels that they're required to bring so there was some volatility in the volumes over interim service that that we didn't anticipate that kind of flowed through to our to our financials and then the other item would be we typically see epic reporting on a monthly lag. And so for those two items kind of caught up to us here in Q4.

Okay, that makes a ton of sense. Thank you. And then it's a follow-up. Can you provide some color as to the specific drivers accounting for the record cost per well connections and the DJ in Delaware law and in 2020. Yeah. There's a there's a couple of big things in there at a high level then. I'll let Robin give you some more color. You know, we we we fundamentally shifted how we took our contractors and and how we manage those projects in 2019. And and we saw real benefits that will carry over and then we're we're really close to existing infrastructure in bulb Jason's so we're going to significantly reduce the the distances and then you're going to add anything Robin. I think it's a a complete scrubbing of our processes and procedures out in the field and even some of em design changes or where we've made some optimizations. And as as Brent pointed out the good news is we see the sustainability of those cost savings and that's why we were able to roll that through and reduced our organic Capital Outlet off.

here

Great. And then last one for me Brian if you can just provide some background on the Strategic rationale as to why you exercise the saddlehorn option and then the Strategic Benefit that ownership on that pipeline cruised and BLX. Yeah, I think start with the benefit to the customers mean they're you know, they're we're able to offer them, you know, significantly reduced reverse at least purchase historical wage rates were significantly lower Transportation rates to get out and pushing. And so I think that's that's our main motivation is, you know, figuring out ways to be able to expand, you know, the service that we provide our customers and that's a that's a really good option and one of them frankly is noble noble took some space themselves and then and then we'll be able to because of the, you know, working collaboratively with them, you know, we're able to get the option to own equity in the pipeline.

This is Robin. I'll just add as I think Tom pointed out. We really like the the nature of the minimum volume commitments on this and and what these long-haul opportunities add to our portfolio and help sustain none of our business.

Perfect. Thank you so much.

Again, if you have a question, please press * then 1 our next question is from Jeremy from JPMorgan. Go ahead.

Hey, good morning. This is James Hawker Jeremy. Just want to touch more epic here in terms of the trajectory that you guys c320 for that pipe and then especially after kind of Faith 1919. And I believe the Catholics increased. You just talked to a kind of the why why it went up.

Two items there. I'll answer both Jeremy or James. This is John on the Epic side. It's kind of mentioned before we we haven't really changed our long-run view of the Epic project poem fully commissioned. So it's it's pretty much exactly where we expected to be. When we under Roos the project the volatility that we've seen in Q4 was primarily due to the interim service volume changes wage given that there was no commercial agreements on the pipeline. So we fully expect and we seen roughly that that Trend will change and we'll kind of get into it fully commissioned type cash flow profile for them on the capex side. There was some two buckets of items. There was a couple of things that were kind of out of scope that were brought into scope as an example, acquiring the interstate Grain Terminal relative wage Bill project. If you were kind of recall that they had done that last year and in the scope that that that increased and then secondly they had seen some higher costs on some Pipeline and steal due to tariffs and those came reported to age

from them on a one month

flag that hit in this quarter

Great. Thanks. And then I don't know much work you guys have done here. But in terms of just how much Capital you need to keep. Flat in twenty-twenty any color that you can share off.

So when we were Port our maintenance Capital figure in our guidance, that's actually an estimate that we use to keep volume flat. So we don't do like an implied amount. We actually do a whole population of what we think the capital be required to keep the volumes flat. I will say that we typically do those only for our GMP assets and then our our joint ventures the maintenance capital is implied via that down at the bottom of that project and we only report DCF via cash distributions from those Investments. So there's kind of two parts to how we calculate maintenance Capital, but the number that we report for guidance is typically what we think would be required are GOP business flat.

Great. Thanks for taking my questions.

From David Amis from hikonin energy advisors. Go ahead.

Good morning. This is Michael on for David. Thanks for taking me. Can you give more detail around the freshwater volume Outlook in 2020?

Yes. Hey, this is Robin as I alluded to that we're going.

On the order of 20% year-on-year, but it is pretty volatile. Okay, would you say the range that y'all previously provided is still intact or you just click on it?

Yeah, it's it's largely still intact. You'll see that we we expect it to be a little front waited. We have shifted guidance to be just one one quarter ahead. Just due to the the lack of predictability of that cash flow stream, but the our our initial impression of that business is still similar to what it's been historically.

our next question is

All right. Thank you. Thanks, Michael.

This concludes our question-and-answer session. I would now like to turn the conference back over to Parker are for a clue for any closing remarks.

Thank you all for joining the Nola Midstream fourth-quarter call today. I'll be around all day and answer any questions. Please reach out. Thank you all.

Thanks, everyone the consequences now concluded thank you for attending today's presentation. You may now disconnect.