Q3 2020 Earnings Call
So your 2020 NGL Energy Partners LP earnings Conference call will begin momentarily once again, the third quarter fiscal year 2020, NGL Energy Partners LP earnings Conference call will begin momentarily. Please remain on your line.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the third quarter fiscal year 2020, NGL Energy Partners LP earnings Conference call. At this time, all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the.
You will need to press star one on your telephone please be advised the todays conference is being recorded if you require any further assistance. Please press star zero.
It is now my pleasure to hand, the conference over to CFO, Trey Carlo Mitch.
All right. Thank you and welcome everybody.
The reminder, this conference call includes forward looking statements an affirmation words, such as anticipate project expect plan goal forecast intend could believe me and similar expressions of statements are intended to identify forward looking statements.
While NGL energy partners believes that its expectations.
Patients are based on reasonable assumptions that can be no assurances such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections anticipated results or other expectations included in the forward looking statements.
These factors include prices end market demand for natural gas natural gas.
It is refined products in crude oil level of production of crude oil natural gas liquids and natural gas the effect of weather conditions on demand for oil natural gas natural gas liquids and the ability to successfully identify consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results and to successfully integrate and operate.
And businesses that are built or acquired.
Other factors that could impact. These forward looking statements are described in risk factors in the partnerships and report on form 10-K quarterly reports on form 10-Q, and other public filings and press releases.
NGL energy partners undertakes no obligation to publicly update or revise any forward looking.
Looking statements as a result of new information future events or otherwise.
This conference call also includes certain non-GAAP measures Neely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results.
Please see the partnership's earnings releases, investor presentations and annual and quarterly.
Quarterly reports on form 10-K, and form 10-Q on our website at Www Dot NGL energy partners Dot com under the Investor Relations tab for more information on our use of non-GAAP measures as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable.
<unk> GAAP financial measures.
I'll now turn the call over to our CEO Mr., Mike Krimbill. Thanks Trey.
Oh. This is an see historic quarter with record adjusted EBITDA in excess of 200 million at least 20% higher than any retail analysts projection.
In addition, our 12 month trailing coming.
Coverage ratio skyrocketed from one times to 1.5 times.
During the quarter, we closed the Olson acquisition, which we previously discussed and exited additional small to refine products businesses further reducing volatility and working capital indebtedness.
The quarter benefited from the diversity of our.
Business units with crude oil and NGL logistics, achieving record adjusted EBITDA results.
While waiting for Warner volumes to ramp up significantly.
Our water volume projections are provided by our producers we do not make these up.
You can read earnings transcripts and presentations from Mark.
Customers to determine the exciting future rather than looking in the rear view mirror.
For instance, the Super major customer.
It's only developed 3% of its <unk> position in the Delaware, our water future is bright.
First a I'd like to address.
Some of these research reports.
That have recently been published that provide advice promoter score card approach and ask questions, which are correct in many cases, but misguided and others.
First.
He is NGL focused on reasonable predictable cash flows obviously, yes.
We've exited the two business units that were most volatile.
Our food segment remains highly contracted with long term nbcs.
And our liquids business is asset heavy with 27 terminals and 5000 railcars.
We have substantially grown long term contracted water revenues with acreage dedications and.
He sees and we have significantly increase these long term contracts with investment grade customers.
Second is NGL, increasing its financial discipline again, yes, we have been decreasing indebtedness through asset sales preferred equity issuances and working capital reductions.
We are.
Radically reducing capex in fiscal 2021, beginning this April.
We are approaching free cash flow positive status net of internal growth Capex during fiscal 2021, as a result of lower capex and increasing distribution coverage.
He is NGL management aligned with common unit holders.
The answer clearly is yes, more so than most first NGL executives and directors on millions of common units I personally on nearly 3 million common units.
We cut our distribution several years ago by 39%, which effectively eliminated 100% of the entire GP distribution owners, but only.
39% of the LP distribution.
We have not nor are we currently paying any distribution to the GP owners.
We have defended our dollar 56 unit distribution and refused to reduce.
Even though our yield has increased to its highest 15% of times.
We now only.
Your coverage ratio of 1.5 times, an increasing so we are comfortably, earning our dollar 56.
For should NGL eliminate I'd ours.
The answer is yes, but how best to accomplish it without impacting the common unit holder.
Most eliminations involve the significant dilution to the common.
Older and a unit price decline.
We are taking our time and purchasing I'd ours for cash in small increments. So we limit any future dilution.
There is no difference between an MLP with no idea ours and an MLP with the our I'd ours. It is distributing nothing to the GP owners.
Well that purchases the.
I'd ours.
Research makes no sense when analysts placed NGL in the penalty box because we have I'd ours.
Okay nothing.
And they have no distribution increases project.
[laughter] should NGL convert to a C Corp.
Historically see court conversions are simply.
Vacations were disguised common unit distribution cuts.
These conversions often resulting in large tax gains to the common unit holder.
Do you see courts will eventually become taxable and have the added risk of rising future corporate income tax rates.
NGL is aligned with the common unit holder.
We will not convert we will not stick our common unitholders with a large tax gain.
One reason given to converge is it seacorp returned 25% in 2019 and MLP is lost 2%.
These returns are correct and we must scratched the surface to determine why.
The LP.
The returns were down due to significant decline in the gene.
Piece sector.
During 2019, NGL actually provide a 35% 20 return better than the C Corp average.
Looking ahead, we asked ourselves where the NGL common unit price would have to be in five years in order to provide a 25%.
Net annual total return for each of those five years.
The answer is approximately $21, we're only a two dollar per year increase in the common unit price.
NGL should not be penalize, because it's not seek it should not be penalize because it is ideas that pay nothing to the owners.
NGL should be embraced for successfully completing its transformation looking out for the common unit holder and creating the attractive value proposition going forward.
So finally, our focus for the future one is it one self funding.
To continued de leveraging.
These two are now possible with a 1.5 common unit coverage and decreasing growth capex requirements.
Three were increasing acreage dedications, mbcs and extending tenor of existing contracts.
And fourth targeting investment grade financial metrics and credit rating.
So that.
I'll turn it back to you.
Great. Thanks, Mike lots to be excited about NGL right now.
And in the future.
Let's talk about the quarter, we had a very strong quarter financially and we made significant progress and simplifying our business highlights of the quarter from a financial perspective includes the sustained strong.
Of our crude logistics business driven by volumes on Grand Mesa pipeline.
A record quarter from our liquid segment, which benefited from lower commodity prices for propane and butane contributor in a very strong demand for products.
Continued growth of our water solutions volumes, along with the full integration of mesquite and now hillstone assets into our Delaware Basin system and.
Further reduction or find product segment, where we completed the wind down of our mid continent business and streamlining of our remaining businesses.
All these items contributed to adjusted EBITDA of over $200 million for the quarter, well above industry analysts expectations and a raise of our annual guidance.
We have met our financial target for distribution coverage as Mike mentioned with a current quarter coverage of two and a half times and an LTM coverage ratio of about 1.5 times.
We expect to remain above our target coverage for the foreseeable future.
Our LTM pro forma.
Good EBITDA at 12, 30, 119 is approximately $660 million as calculated for our debt covenant compliance purposes.
This includes our historical adjusted EBITDA from continuing operations and pro forma additions for a full year of the acquisitions, primarily mosquito hillstone, along with credit for organic capital expenditure.
You are subject to certain limitations.
We funded the Hillstone acquisition during the quarter to the issuance of an additional 200 million a class D preferred units and the remaining purchase price borrowed under our revolving credit facility.
Yes.
We also closed small joint venture for the limestone ranch in Lea County, New Mexico during the quarter and utilized approximately 50.
5 million to complete that transaction.
The continued wind down of refined products business, along with earnings in excess of distributions for the period contributed to a significant reduction in borrowings under the credit facility.
Total debt outstanding at 12, 30, 119 totaled just under $3.1 billion.
Resulting in our total.
Leverage at five times as calculated under our credit facility, which is expect to stay around this level for the next couple of quarters, while we continue to eliminate working capital integrate hillstone and grow produced water volumes.
Our targeted leverage metric, including working capital borrowings is four times are lower and we are focused on achieving.
I mean that goal.
We have proven that we will take the steps necessary to meet our financial targets and we expect nothing different in this case.
We have already reduced total leverage by approximately two times over the past two years, including reducing future working capital needs by at least $400 million.
We've improved our distribution coverage by over 40 per.
Over the same period and also grown our distributors are grown our business by over 40% on an EBITDA basis during that same period.
We did all of this while also improving the cash flow profile and predictability of earnings and simplifying our business, while focusing on our core strengths.
Now we'll cover some of the details driving our operating.
For the third quarter and year to date fiscal 2020.
Adjusted EBITDA, excluding discontinued operations total approximately 200 million for the quarter and almost 428 million year to date.
Discontinued operations includes the historical results of the typical and mid continent businesses, which have been.
Along with the results of our glass blending business, which we are in the process of liquidating as well.
We would like to note that the current quarter discontinued operations also includes tips of 17 million dollar share at the biofuel tax credits, which NGL retained in the sale of that business.
And we'll receive the business benefit.
The remaining 14 million dollar benefit from these credits is recognized in the continued operations other refined products segment.
As a reminder, while I cover each segment adjusted EBITDA is a non-GAAP measure that we reconcile to our earnings in our earnings release Investor presentations inquiry.
Reports to operating income, which is a GAAP measure for each segment.
Looking at the crude oil division. The crude segment continues to show steady performance and generate approximately 56 million of adjusted EBITDA This quarter and 162 million year to date.
This is in line with the upper half of our original 2020.
Adjusted EBITDA guidance range. So we are raising and tightening our range to $215 million to $220 million for this segment for the full year.
Grand Mesa volumes averaged 134000 barrels per day this quarter and has averaged about 130000 barrels per day. This year remaining inline with our.
Expectations.
We expect volumes to remain at these levels through the upcoming quarter as well.
Our other crude logistics assets have also performed inline with expectations with our Marine fleet operating at full utilization continued strong demand for our Cushing storage and no significant variances in basin differentials driving minimal.
Okay.
This business continues to see very little earnings volatility. Despite the changes in crude prices as the remains very little direct commodity exposure in this segment.
Jumping to water water adjusted EBITDA was 62 million for the quarter and has totaled 160 million year to date.
The current quarter.
Includes two months of Hillstone, which closed on October 31st.
Total disposal barrels were almost 1.6 million barrels per day during the quarter.
This is adjusted to account for only 61 days of the Hillstone assets.
The increase in volumes over the prior quarter was primarily driven by strong growth behind the musky assets.
Which averaged almost 475000 barrels per day during the quarter and Hillstone, which contributed approximately 270000 barrels per day for the quarter again adjusted for 61 days.
The growth in volumes in the Delaware Basin were partially offset by declines mostly in the Eagle Ford as rig counts of decline, but also in the DJ Basin, which we believe was mostly weather.
And timing related during the quarter.
Approximately 67% of disposal volumes were delivered via pipeline during the quarter and we exited the quarter with over 70% of volumes on pipe.
We are expecting pipe volumes to continue to increase on our existing systems as our volume growth is focused on the Delaware basin gathering system.
That's system continues to show strong growth at the producers behind our system execute on the drilling and development programs. We are expecting water disposal volumes to continue to increase in the basin and expect a significant increase in the middle of next year with Exxon brings the poker Lake project online as well as other dedicated producers expected volume increases.
As a reminder, the poker leg dedication includes approximately 70000 acres in southern New Mexico under a 20 year fee based contract with Exxon.
The infrastructure for this dedication is almost complete requiring minimal incremental capital to support the disposal volumes.
Exxon is in the very early in into their Delaware Basin.
Development plan and we're not expecting significant contributions from this dedication until mid 2020.
We received an average total fee of 62 cents per barrel for the quarter, which is consistent with our disposal for year to date.
Our skim oil volumes totaled approximately 3400 barrels per day during the quarter and realize.
Oil revenues after hedges totaled approximately $56.90 per barrel with an average skim oil cut up 21 basis points.
We are well hedged for calendar 2020, with approximately 3700 barrels per day hedged at an average price just over $56 per barrel.
We also have hedges in place through calendar 2021 at approximately $55 per barrel.
Fresh water sales increased this quarter as well.
As a reminder, we have freshwater agreements in place supporting a significant amount of our new Mexico permitted volumes for calendar 2020.
Our current.
Pretty solid facility in the Eagle Ford came back online during the quarter and drove the slight increase in solid volumes.
The work performed on this facility as well as certain well workovers pump replacements and upgrades drove our maintenance capital expenditures so far this year.
Operating expenses were 42 cents per barrel for the quarter adjusted for the partial.
Order for Hillstone compared to 40 cents per barrel year to date.
The increase is mostly related to the integration of systems acquired and not yet realizing certain synergies.
Opex remains higher than budget as we worked to automate facilities increased utilization integrate acquisitions and streamline operations.
We're also.
So continuing to move facilities from high cost diesel generators as we connect into electric power grid.
We continue to focus on reducing disposal operating expense across the system with a target of 30 cents per barrel.
Based on results today, along with the updated timing from producers.
Expected volume increases.
And we currently expect to be below the low end of our previous adjusted EBITDA guidance range for fiscal 20.
Per our most recent conversations with our producer customers and the activity we see in the field the water volumes are coming.
We estimate that water volumes are approximately three months behind our original.
Based on this delay we are adjusting RF why 20, adjusted EBITDA guidance range to $240 million to $250 million.
Moving to liquids.
Adjusted EBITDA for liquids segment totaled a record $69 million this quarter and as totaled 100 million year to date already exceeding the high end of our.
Guidance, which we also raised last quarter.
We are raising our adjusted EBITDA guidance again for this segment to 115 to 120 million for fiscal 20.
The quarter quarterly results are not just timing related.
We continue to benefit from our recently acquired terminals, including our Chesapeake export facility, which is loaded 29.
Ships since April as demand has exceeded our initial expectations.
The Chesapeake team has done a great job managing this increase in volumes, while also upgrading the facility to support future opportunities.
Butane sales remained strong through the quarter and we benefited from low commodity prices and building our inventory position coming.
Into the period.
Retained demand diminishes in our fiscal fourth quarter, but the overall year has been very robust.
Wholesale propane started the winter season with strong demand from late season crop drying and a cold November and margins benefited early in the quarter.
We have seen the forecast warm up for the remainder of the winter and certain operating areas.
We are well positioned from an inventory standpoint to manage a potentially warmer season from a margin perspective, however volumes could be impacted potentially lower propane volume was factored into our updated guidance for this segment.
Finally refined products, our remaining refined products business will primarily consist of our rack marketing business.
Which carries minimal inventory and markets barrels through third party terminals across the United States and a renewables business, which is centered around biofuels marketing.
Those divisions are reflected in our continuing operations, while the remaining divisions have been removed and are now carried in our discontinued operations.
The segment adjusted EBITDA from continuing.
Operations was 24 million for the quarter.
And has been 34 million year to date above the high end of our adjusted EBITDA guidance range as a result of the biofuel tax credits.
We realize the benefit for the 2018 and 2019 biofuel tax credits during the quarter with a portion associated with our continuing business totaling approximately.
$14 million, which is reflected in this segment.
We do not expect to the bio fuel market to generate the type of volatility we have seen in recent years as the credit is now in place through 2022.
Our continuing businesses have been more stable predictable and carry much less inventory and therefore working capital requirements.
Paired to the businesses we have exited.
Based on our restructuring of this business and the results year to date, including the benefit from the tax credits. We're also increasing our adjusted EBITDA guidance range for this segment to $35 million to $40 million.
Our growth capital spending is decreasing as we complete our largest.
Structure projects, including the Western expressing Lea County Express pipeline and the interconnections of the mesquite and Hillstone systems into our legacy system.
Maintenance capital expenditures have been relatively consistent the past few quarters and are expected to remain at this level.
We expect to be able to fund our growth capital expenditures in fiscal 2001 with our.
Excess cash flow from operations.
In summary, this was a record quarter for NGL and we are proud of our accomplishments we simplified our business strategy you have maintained a prudent diversity of cash flows. We are focused on our core areas of expertise and grown our business significantly we're focused on reducing our leverage while.
And to execute for our stakeholders.
That concludes our prepared remarks, we'll now open the line for questions.
Thank you as a reminder, ladies and gentlemen to ask a question you will lead to press star one on your telephone to withdraw your question. Please press the pound Keith please standby, while we compile the Q and a roster.
And our first question comes from the line of TJ Schultz with RBC capital markets.
Okay.
Hey, guys good morning.
Hi, TJ.
Just first on the water volumes I think you said about kind of three months.
Behind schedule.
Does that kind of.
I wish that exit rate that you had indicated before I think 1.82 million barrels a day into June or did that range that you give.
That you gave for March not include Poker Lake. So maybe if you can just give some expectation on what exit rate would be.
The end of this calendar year.
After poker.
Okay.
Let me Sir.
I'll start TJ so.
We were at about 1.6 million barrels.
For the quarter.
That includes the two months of Hillstone.
We are seeing volumes grow this quarter I think we'll be at the low end of that range.
Heading into that.
The exit for.
For Q.
But again, what we're seeing is a delay in volumes poker Lake is not expected to come on until mid 2020.
So we're not factoring poker leg into our exit rate for the fourth quarter.
Yeah.
Okay.
That makes sense and then I.
I think axio has some pretty sizable units to the north of Poker Lake If I look at map set its published that includes.
James Ranch, and Big Eddie have those water rights and dedicated yet.
They have not.
If not.
Okay no.
Go ahead.
All right. That's fine is that something that you would expect they look at dedications this year.
I don't Doug.
Do you have any thoughts on that would timing might be.
Other than we.
I would say we cannot speak to that publicly at this time.
Okay good enough okay.
That's fine obviously, there thanks guys.
Thanks TJ.
Thank you and our next question comes from the line of Sean.
Yes.
Okay.
Hi, good morning, everyone.
Just wondering if we could start off talking about the water business.
I recognize the delay with one of your producers and so forth.
What kind of wanted to focus actually on the margin side of it.
You've done a lot of acquisitions expansions over the last couple of years and so forth.
When.
We think the margin that you're achieving in the water business.
Is this quarter representative of what it's going to be on a go forward basis.
I was wondering if you can sort of also talk to maybe to second question, but if you can talk to the skim impacts.
You first started this years ago.
The skin was a big deal.
I felt with all the investments that we're supposed to come down if you can sort of give us some color with with respective how much of a percentage of of the business. It is or of the margin impact.
We should think about it on a normalized basis.
Sure. Thanks, Thanks share so to start on.
The margin so.
I'm going to say no. This is not what the expected margins would be we do expect our net margin to be.
Larger on a go forward basis, if you look year to date, our disposal fee has been very consistent at about 62 cents a barrel.
That rate may come down slightly as.
We bring more barrels on type.
But I think thats, a pretty consistent number to use.
Our skim oil has generated about 14 cents per barrel.
Also I think thats pretty consistent as we are hedged for the next two years. So we're well positioned from a revenue perspective, so that gets you to.
To call. It set that 70 576 cents a barrel on the revenue side operating expenses is where we have not realize the synergies from the acquisitions and we have not been able to bring all of our disposal facilities on to electrical power.
We're still working to tie everything in on pipe.
Our.
Opex is running higher per barrel. Additionally, I'll point out that our operating expenses right. Now also include ancillary expenses related to freshwater solids.
The the management of the.
Ranches in southern New Mexico.
Thats something that we will look to break out to help from a model.
Active but overall, we are expecting that operating expenses will come down significantly for disposal alone our targets 30 cents a barrel and we believe that is absolutely achievable.
So that's where you get the large benefit from a overall margin perspective is in that the reduction of operating costs.
Okay, and just a quick follow on on specifically on the topic you. So with poker Lake will them will it have to see margin is everything that you've got on a go forward basis or is it a higher margin or lower margin relative to what you have right now.
Yes, I, we can't talk about the specific rates, but what I.
I would indicate as poker Lake is all delivered at one point, so very little operating expenses expected on from the poker like volumes.
Okay cool.
Maybe it's a phone.
Yes, well your follow up your other question was around skim oil as we bring more volumes.
On pipe the skim oil percentage compared to disposal volume does come down and we have been guiding that way.
For this quarter, we were nearly 21 basis points.
Again, as we continue to to add volumes on pipe that number will most likely the lower.
Than what we have seen historically when we were primarily truck volumes. So we will continue to update our expectations as we give our annual guidance on what to expect from a.
Skim oil perspective.
Okay definitely helpful.
Maybe a question for Mike.
Your prepared remarks.
You talked about lower capex going forward and being able to.
You'll be able to pay down leverage and so forth.
To give us a sense of the rate of decline.
That you're expecting in terms of Capex and then.
There was a pause on acquisitions factor into that as well too.
Two.
Do you feel that you've acquired enough specifically the water business to achieve the scale that you originally looking for when you embarked on this and it would only be opportunistic and infrequent acquisitions on a go forward basis.
Yeah, Weve I think the two big systems that we wanted to purchase.
The Hillstone skied so.
Thats done it did the focus now.
Is on acreage dedications and Nbcs. So we have what do we have now 4 million barrels.
You have capacity total capacity permits costs.
So theres plenty of room, there and we've completed our.
Next WEX.
[music].
And yes pipe 24 inch are.
Poker Lake 30 inch will be complete I think around June 30.
Then we just have the orla 24 inch remaining.
So.
Capex.
Actually we have come up with a number yet, but we if I can say, we batted around $100 million.
For water, which is going to be mostly just remaining pipe.
All right.
I guess that makes sense perfect. Thank you very much guys appreciate the color.
Hi, Thanks.
And our next question comes from the line of Pearce Hammond with Simmons energy.
Good morning, Thank you for taking my questions.
First question pertains to the water business and just following up on the color that you just provided on some questions related to that but if you were to think about.
The adjustment in the hip adopt for the water business in three buckets.
Buckets bank volumes.
I'd like you said the volumes are coming in they are coming but they're just coming out of slower pace than what you're expecting.
Revenues and then operating expenses, where do you think the majority of that.
Out adjustment is coming from within those three buckets.
So so peers volumes and opex are going to be the two drivers right. As one is we get more volumes you are going to naturally bring down your operating expense per barrel as we get higher utilization of facilities.
But this is a volume game I.
I think the dedications that we've been able to acquire the long term dedications.
And the Nbcs.
Allow us to capture a significant amount of the volumes in our core focus area, which we think is the best place to be in the country. So.
Okay.
I believe this is still a volume gain but up operating expenses should not be discounted from a rate per barrel perspective again as I mentioned before I don't that's not we're not going to I don't think will be driving rates higher.
I also don't see them coming down significantly either.
Okay, Great and then my follow up just pertains to the competitive dynamics on the ground. If you are trying to sign up say new water deals with producers, what's the environment like right now how competitive is it.
Just some color around that would be great.
Hey, Doug could you cover that one.
Sure and focus being the Delaware basin.
There really are not a lot of.
Large.
Acreage dedications or nbcs available.
Through Hillstone Muskie legacy NGL.
We have a very large share of the.
What's in the Delaware.
And then obviously some of our competitors they have their dedications as well so from a competitive basis.
Much of the opportunity for others to come in and Greenfield or start competing with us.
It's very tough for that environment.
Due to the fact, there a lot of the long term dedications have already been eight and that's why it's perfect opportunity for us to now focus on.
Fold ins as far as folding in our contracts into our sub regions within the Delaware.
In.
Into our growth pipes and existing online capacity so to answer your question the competitiveness.
It remains but a large amount of the contracts and dedications have already been wrapped up in the in the in the basin.
Okay. Thank you very much.
Okay.
Thanks, Barry. Thank you. Thank you next question comes from the line of Spiro Dounis with credit Suisse.
Hi, Good morning, gentlemen, Mike I appreciate your comments around some of the qualitative attributes being cited as an overhang, but I guess, it's still argue that strong enough.
It should be able to overcome maybe all or most of that you mentioned being forward looking here on water sounds like it's got a really strong outlook I.
I don't want to while in the past, but but I guess, there's been some interagency or mystore results that to some degree of been outside your control it sounds like customer related but I mean striving investors to maybe discount some of the outlook from here and so can you just.
He walked through some of the specifics on what exactly is driving some of the underperformance and then what's going to basically a base going forward.
Sure Doug.
Sure as train went too.
What we call underperformance here in this quarter.
A material amount about a third.
Of our missed a budget was related to generators in diesel.
Budgeted.
The driver in the Delaware, especially the new Mexico portion.
The local the provider there is there's plenty of generation.
In the area.
There is a.
There are of distribution.
So their execution on their end to actually get the power distributed to the certain areas has been a very big struggle for them, which creates obviously hang over for us that was unpredictable. So.
So that.
We come out of the Woods, we took about a third of our generators offline in January which is great news. We finally got on station power and then by mid to late summer. Our expectation is to have the most of the remaining generators offline and online power so that is coming.
That's going to be a material.
Gain for us on the EBITDA aside.
As far as volumes go.
Like Mike said, we receive the forecast directly from our customers and that's what we that's a we forecast off of.
Interestingly enough.
Those were lower than what they.
A forecasted but now weve turned the corner into February and it has gone completely the other direction and we are scrambling to to say Oh, My gosh look at all this water.
Good problem to have right.
Makes up there's a lot to make up but we're seeing that.
And in the strength of those forecast coming back and actually those forecasts are outpacing where they were.
Previously forecasted.
So if you take volumes in Opex I'm, obviously, the integration side of things.
With with.
Skate and Hillstone.
We're very busy.
Reducing opex and meeting those synergies that we had modeled those are in play a lot of the hillstone assets contained rental injection pumps.
Other rental equipment that NGL purchases on the capital purchase.
Those are being changed over.
And they were some of them in January certainly in fed the March this last quarter I will be seen those expenses come off the books.
Skeets going very well and integration side.
We're enhancing.
The how that business is being run.
And and.
Working on Opex on that side, so it didnt hopefully that answers your question.
It's a transition it's a new basin like Mike said, you know are one of our largest customers only 3% developed in their area Theres a lot of midstream development to happen on our end, but there's also a lot of.
Port development around infrastructure, such as power that is happening as well and and frankly, we're going to come out of the woods on a lot of that.
This this fiscal Q4, and then Q1 of 21.
Got it very a very helpful. Thanks, Doug.
Second question, maybe for you trace thanks.
Grand Mesa.
Let me really well this year it looks like that should continue based on the outlook just curious how you're thinking about maybe some of the credit risk right now I think some of your your major customers are seeing some of their bonds trade a little bit lower here. So.
Hating about credit risk against Grand Mesa being.
Pretty strategic importance in the basin.
Sure. So so we do have diversified customer base on Grand Mesa, obviously some of the larger.
Customers.
You know do have some credit risk associated with them, we monitor that very closely we feel very comfortable with what all of our producers are saying publicly as.
Well as to US directly we do have fore sight.
They are nominating volumes ahead of when they're reporting publicly so we do get to see what is coming.
Down the pipeline.
So that gives us some foresight into what's happening and as you can see from from the volumes.
The volumes have remained strong so we feel good about where things stand.
It's something that we will obviously pay very close attention to.
But grand Mesa was built for these particular producers were strong partner with these producers and we will continue to partner with these producers.
On the future.
Basis, even under long term contracts Theres still a lot of work between the producer customers and the pipeline to make sure that we're meeting each other's needs.
Very helpful. Thank you gentlemen.
Thanks Dara.
Our next question comes from the line of Michael Blum with Wells Fargo.
Hey, Thanks, Good morning, everyone, maybe just to stay on Grand Mesa for a second so I noticed in that in the quarter.
Talked about a purchase of third party volumes I just wanted to understand is that your marketing company.
During those barrels and if so how do we think about the margin on.
Barrel versus a barrel that's just shipped by a third party and should we just expected that's going to be sort of a normal.
Course of operations going forward.
So Michael Yes, that's consistent with how the pipeline has operated from from day one.
NGL crude logistics is a shipper on the pipeline.
They pay at the tariff rate to the pipeline, we report Grand Mesa on a net basis. So we do factor in.
Any.
Any loss that crude logistics may take.
Into our net.
And to what we report.
So that has been consistent since.
Since the start of the pipeline.
That the margin that.
Logistics can generate is generally in line width of the differential out of the basin.
So I think I've seen some some reports recently that in the two to $3 range I think thats consistent with what we would expect right now as well.
Great and then.
Second question was just recently hired.
An executive VP of strategic initiatives and I, just wondered maybe if you could just talk a little bit to that and.
What what be what's the what's that role going to going to Intel and especially I guess in light of the fact that sounds like you're you've kind of.
On the heavy lifting on M&A in terms of the acquisition do you want to do just want to get a sense of.
Thanks.
I think that this is John sealant executive Vice President of strategic initiative I think that the role here is really to make sure that we number one don't miss any opportunities.
From a strategic acquisitions or divestitures standpoint.
And then I think that Theres also a number of other important initiatives that the company.
Is focused on including SG importantly.
But also to.
Looking forward, we want to make sure that.
We are.
Presenting our story.
Presenting the way that we communicate with investors on an ongoing basis.
I think that you'll see.
Increase transparency around a number of different things.
Over the course of this fiscal year ending on the go forward basis.
Great Thats all I had thank you.
Thanks, Michael.
Thank you and I'm showing no further questions at this time I'll now turn the call back over to CEO, Mike Krimbill for closing remarks.
Well, thank you for joining and we'll talk to you and a few months.
Okay.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating and you may now disconnect.
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