Q1 2020 Earnings Call

Good morning, and welcome to the noble mid stream first quarter 2020 earnings conflict. All all participants will be in listen only about should you need assistance. Please ignore accomplished specialist by pressing the star key followed by zero.

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Please note this event is being recorded.

Your turn the conference over to <unk> manager Investor Relations. Please go ahead.

Thank you and good morning, everyone and walk into a normal midstream partners first quarter 2020 already call.

You are adults expressed smaller Seattle Rollins the older President in Seattle, and Tom Christiansen Fiasco.

Prepared remarks, we will hold a question and answer session.

Here to participate and the question answer session. We also have John <unk>.

<unk> corporate development, Chris <unk> director of capital projects.

<unk> director of operations.

Morning, We announced first quarter 2020 results as well updated for your at 2020 Guy.

The press release in trouble and outlines are only investor section ever website, N.B.L. midstream dot com.

Upon finally later today are 10, Q. will be available in the same location.

As a reminder, today's discussion came forward looking statements inserting non got financial measures.

Refer to our latest news releases for non-GAAP reconciliation as well for our latest filing for the S.P.C. for Alaska factors that may cause actual results. The difference really from the end of forward looking statements.

This time I will turn the collaborative right.

<unk> good morning, everyone.

I'd like at first sight, everyone on the on the call that I Hope you and your families are well and have remained safe.

In response to cover it 19 double mystery made an early decision to transition to work from home to protect the health and safety of our office based workforce.

I feel personnel continue to report to our operating sites took precautions to keep themselves say from the virus and worked very hard to maintain say kind of fishing operations.

I'm very proud of our response and the uninterrupted customer service, we delivered and I'd like to thank all of our employees in contractors that made that possible.

So far our ability to gather oil and gas and produce water and execute our capital projects has not been impacted by the virus.

I'm not sure more of our Q1 execution in a moment.

During the quarter, we reacted quickly and noble mid stream to protect our business and prioritize our balance sheet in liquidity.

Reduced organic capital expenditures by over $140 million, two additional capital efficiency gains and lower operator activity.

We deliver to 15% reduction in operating cost from our contract negotiations are lowering supply chain cost and project referrals.

Reduced arnett genetic costume multiple methods, including lower and cash management cash compensation for management in enacting a new furlough program.

And lastly management board makes it difficult, but bring decision to reduce our distribution nearly 75 per cent saving approximately 200 million an annualized cash flow to further protect the balance sheet.

We have performed on all of our she wasn't guidance metrics and continued to execute well what we can control oil gas and produced water gathering blames all benefited from accelerated new well delivery and well connect timing.

That's all that to record quarterly even die.

Going forward, we expect a a fairly limited completion activity beyond early cute too.

Before trying to call over in a rather than I want to highlight no well mixed drinks key differentiators and important inflection points within our business.

First in our gathering business. The partnership is spent capital to build up the necessary infrastructure in each patient over the last couple of years, we now have the backbone infrastructure in place to efficiently add new connections.

Junior to produce our capital costs for well.

Second over the last several years, we've diversified our business with the addition of intermediate and long haul pipelines.

Investments in these projects was nearly completing the first quarter.

We moved that investment face, we expect to see growth in high quality contracted even die of free cash flow well differentiated from gathering peers.

Yep it crude in Delaware crossing pipelines are online and flowing can we anticipate the epic wire grade to transition to full full service very saying.

It's approximately 65% of the 2020 estimated throughput back by minimum buying commitments level of mid stream now has a line of sight to growing even die from our transmission business.

Beginning in two to these inflection points will transition noble mid stream into a cell funding entity without the need for additional equity investment. So going forward will continue to prioritize capital discipline free cash for our generation in debt reduction.

What's that all turn the call over to Robin to update on operations and guidance.

<unk>.

During the first quarter noble midstream core gathering dust out delivered volumes expectation is benefiting from high ranked times across our system is an excellent project execution.

Good strong for a pet coupled with operating efficiency is in cost reduction contributed to their record either undistributable cash for the partnership generates.

It came delivered freshwater to 58 completion and Adam nearly 140, well connection into our gathering systems across both basis during the quarter.

In addition, take it was expanded on the black Diamond crude gathering system and the D.J. basin.

60000 barrels of oil storage completed during the first quarter and an incremental 30000 barrels added in late April.

According to the 2020 outlook, we have to spend it gathering guidance due to the uncertainty around the volume and duration of customer production curtailments over the next several months.

Yeah, we provided an updated for your outlook for capital investments and other key financial metrics Saison scenario analogous.

We seems moderate customer could tell that across gathering and transmission segments in the height of our guided ranges.

Insignificant calmat through August and the lower bound of our range it.

You'd curtailment and adjustments of gathering freshwater delivery and transportation forecast universities activity.

Like at the annual adjusted not even a a $370 million to $410 million.

In a range of distributable cash flow of $280 million to $310 million.

Despite your well connections the partnership reduce her well connection costs more than 25% and the first few months of this year.

As a result of these efficiency gains and project deferrals, we have reduced organic capital budget and additional 30 plus percent I'm on March update.

And now anticipate a capital range $60 million to $80 million this year.

In total we have lower capital expectations by more than 65% from our original February Guy.

These reductions brother enhance our free cash flow generation, they're getting in the second quarter and continuing for the remainder of this year and highlights are resiliency inability to efficiently reallocate resources to align with the customer activity.

Looking ahead.

Early in the second quarter, we conducted 54, one D.J. base, Okay, and it <unk> approximately two rig across our acres dedications for the remainder of here.

When noble reconnects is completion activity, we're well positioned just quickly Jeanette new wells for minimal costs due to the synergies of Red development.

And the Permian Bay, then we anticipate in additional half a dozen well connections early in the second quarter before a pause a new project.

With activity expected diversity on and like 2020.

[noise] as a result of these activity reductions we're planning for minimum organic capitals, then for the remainder of 2020 and are currently evaluating optimization of our facilities to reduce operating expense.

Meanwhile, has already identified $15 million to $20 million in total extent fading for the year.

We will continue to work with our existing and potential customer base on timing and feature development opportunities and we'll be cautious before committing incremental capital until we have further line of sight on activity plan, which are likely to be supported by improved commodity prices.

I will not protocol ever to Tom to update you on an equity investments and the balance sheet.

Thanks Robyn.

First an update on our pipelines.

The fact of February 1st Black Diamond or partially owned subsidiary acquired a 20% ownership stake in the South won pipeline for 160 million were 87 million net to know the mid stream.

During the first few months of ownership settled one generated earnings a 4.6 million for black Diamond for 2.5 million net to noble mid stream.

We also saw volume improvement from that bit crude during the first quarter as the crude line transition to permanent service.

Despite near term activity headwinds, we continue to leave the epic crude is advantaged in this environment.

As a new build pipe on epic crude how's lower operating cost an existing pipelines and it's recent market based terrorist reduces exposure to near term rate renegotiations.

It's Doc space.

In Corpus Christi provides customers with access to premium pricing in international crude markets and it has over 5.1 million barrels of crude storage online now with an additional 1.8 million expected later this summer.

Why grade is currently transition from interim service back to N.G.L. service India's on target to start up during the second quarter.

And this uncertain investing backdrop the J.V. partners.

Delayed the completion of the second Greenfield fractionator until the second half of the year. When we expect to have better visibility has to the depth of this market downturn.

Dover Crawfish entered full service on time and on budget during the quarter and began transporting crude from this other Delaware base into Wink.

Benefits of this asset included it is tied into multiple customer terminals in a drawing hub in the premium basin and it's connectivity into at the crude mainline allows us and allows our current and future customers low cost access to the Gulf.

In addition to these recent portfolio enhancements, we continued to see solid performance from our advantage in white cliffs Highpoint investments.

Type one investments coupled with our freshwater N.B.C. provide quality instability into the partnerships cash flow profile and will help us to navigate and uncertain 2020.

Now to first quarter financials.

Noble muttering Hattie record quarter with 170 million of adjusted to you but.

In 94 million of distributable cash flow. This is the first fourth quarter, reflecting the impact of our recent drops and suffocation transaction.

During the quarter, we spent 43 million on organic capital expenditures and 148 million on equity investments.

These investments were made to acquire this I don't want to interest.

And meet the funding requirements of our other pipeline investments.

For the full year, we now expect equity investment capital to me between 240 million and 260 million.

The current prices location has caused us to lower are near term price forecasts for a third party D.J. gathering business and has resulted in the partnership recording your goodwill impairment of 110 million or 60 million net <unk>.

This goodwill was related to the 2018 acquisition above black Diamond gathering system.

It's worth mentioning the fair value analysis using necessity goodwill for impairment does not include our recent valuable investment in settlement pipeline.

The partnership is on path to be self funding even in this low to know activity environment.

Which highlights the support of our sponsor in creating a long term sustainable invaluable midstream company.

<unk>, we expect that are distribution coverage will remain above four times in 2020.

Returning capital to you know holders remains an important priority for the partnership.

We will continue to monitor both our business and the market conditions as we assess the appropriateness of our distribution each core.

We ended the corner with four times leverage in over 400 million in liquidity. Additionally, we are actively working to extend the debt maturities that come due in the back half of 2021 and in 2022.

We believe that even in disparate curtailment scenarios, we will remain safely below our five times debt gotten a threshold.

As a company, we understand that lower leverage will be essential to keep the partnership competitive through commodity cycles.

With our target leverage of three times, we are laser focused on reducing the absolute amount of our debt during the slow down our assets are well conditioned to immediately generate the excess cash flows needed to begin to see leveraging process and I look forward to to updating you on our progress as we move throughout.

Sure.

With that I will now it turns the call over for questions.

You will now be getting a question and answer session to ask a question you may <unk>. If you are using a speaker phone. Please pick up your handset before pressing the keys.

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Our first question that's from Jeremy Tanit J.P. Morgan. Please go ahead.

Hey, good morning, guys James on for Germany wants to start here with the D.J. outlook. It seems from nobles call earlier as well.

Midstreams here is like D.C.P. yesterday that the D.J.P. is and seem pretty solid April and and even constructive I was wondering giving your guidance assumes curtailments already in June how you're seeing that play out room may and just talk about maybe the near term out there.

Yeah. Thanks for the question James.

As I mentioned in my prepared remarks in the D.J., we continue to see drilling rig activity and even through early April and into May work, we're seeing continuing well connection. So we do have activity and then on the customer curtailment side as as our sponsor mentioned earlier, we are anticipating just see some of that and.

Quarter, but really not seeing it across our meters yet early amazing from a month or a week into this month.

But as we look forward to G.N., we've we've but some of that into our scenario analysis and our Ford luck with respect to our guidance on either end distributable cash flow associated leverage with that.

I'm so.

So, it's certainly not as constructive as before but we're well prepared their potentially even for <unk> activity Roseanne's later in the air because we've got a lot of sister section development.

Systems are largely already in place to live just be incremental while connection to fit in some cases, turning on ego nodes.

God that's helpful and then in black or you mention I I think in your guys. You don't have any ethnic distributions is that is that still the case.

Yes. It is.

Okay, great that cupboards for me appreciate the questions.

Exchange.

The next question is from Paris Hammond of Simmons Energy. Please go ahead.

Oh, good morning, and thanks for taking my questions. My first question is what is the path to bring in the distribution coverage ratio back down and then at normalized environment. When we get past all of this cope it in.

Kind of the oil price implosion, what what would you say would be the target distribution coverage.

Yeah I think this is disappearing on this bread I think you should think about it you know in terms of priority that will be near term focused on on the balance sheet in debt reduction as we moved out of the they're heavy investment phase and as we move forward now I think we.

I think we'll stay focused there, but as we start to get more comfortably no close to the three times target. We can start thinking about you know increasing distributions again later.

Okay. Thank you and then as my father, one appreciate the guidance that you provided the lab portray show this year 3.9 to 4.3 times and pick it up on your comments just a few moments ago again, and then normalize environment. What do you think the ultimate target should be for the laboratory.

Show for N.B.L.X.

We're shooting for three times are lower.

Yeah, and here's this is <unk> kinda to both of your your question some additional color.

And as you know, we've got lots of our our gathering backbone in place and much of our.

R.J.B. investment says pipeline have are starting to turn on right now so must as much of that spend is behind us to were well set up to have minimal capital investments as we move into next year. So then it's just a matter of turning on incremental well connects so as far as our our program outlook. It we're set up quite nicely, especially with all the.

And we've been able to roll through the system.

It's really continued to generate free cash for like we stated we expect starting this quarter.

Okay. Thank you very much robin.

Mm.

<unk>.

Again, if you have a question. Please post are then one.

Yeah.

There are no question about this time, it's concludes our question and answer session I would like to turn the conference back over to brand smaller closing remark.

Alright, that's one of bank everybody for your time today and help your family still remain safe.

You know words, whereas some obviously some very unprecedented times in the industry, but we are starting to see some positive developments. When you look at yeah producer camper reductions in there now shut ins and <unk> plus supply cuts in the beginnings maybe the the recovery globally from cope with 19, I think all that sets up well for.

Producers increasing.

<unk> later this year early next and increasing through but throughput and one day.

Do so we'll be ready to increase with them.

<unk>.

[noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.