Q1 2021 NGL Energy Partners LP Earnings Call
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2021.
NGL Energy Partners LP earnings Conference call.
At this time, all participants are not listen only mode.
But the speakers presentation, there will be a question and answer session.
Last question. During this time, you would need to press star one on your telephone.
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I would now like Dan the conference over to your Speaker today, Mr. Trade cars are there.
So please go ahead sir.
Great. Thank you and welcome everybody.
First I hope, everyone understand safe and healthy.
As a reminder, this conference call includes forward looking statements information words, such as anticipate project.
Correct playing goal.
Forecast intend it could be leave may and similar expressions of statements are intended to identify forward looking statements.
Well the NGL energy partners believes that expectations are based on reasonable assumptions there can be no assurances such expectations will prove to be correct.
A number of factors could cause actual results to differ materially from projections anticipated results or other expectations included the forward looking statements.
These factors include crisis and market demand for natural gas natural gas liquids refined products in crude oil.
Production of crude oil natural gas liquids and natural gas.
Back to weather conditions on demand for natural gas and natural gas liquids.
The ability to successfully identifying consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results.
Successfully integrate and operate assets in businesses that are built or acquired.
Other factors that could impact. These forward looking statements are described in risk factors in the partnership's annual 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 statements as result of new information future events or otherwise.
This conference call also includes certain non-GAAP measures, namely 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 reports on form 10-K, and form 10-Q on our website at Www Dot 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 GAAP financial measures.
We believe it is important to cover our first quarter financial result, before my guess is thoughts on the business and the rest of fiscal 2021.
I will discuss our op results for the quarter for each segment and then turn the call over to Mike before opening up the wine for questions.
We also have her E V piece, Doug White for water Dawn Robertson for crude and Jeff tender and Don Jensen for like within refine along with other members of management on the call to assist with QNX.
Starting with crude the crude segment reported approximately 31 billion of adjusted EBITDA sport.
There are several items impacting the crude segment this quarter, including the benefit of contango with our storage assets offset by cost related to the C N plus woke up on it and the pricing a barrels purchase and shipped on Grand Mesa.
I mean in recognition of hedge gains and losses as well as profit embedded in our inventory for July sales.
We have estimated approximately 16 million a profit embedded in our inventory, which is valued at weighted average cost that we expect a recognized during our second quarter.
We have already realized the majority of the hedge losses associated with these barrels when we roll those hedges forward from June. So this is just a matter of timing.
Grand Mesa volumes averaged 119000 barrels per day this quarter. However, our profitability on a portion of those barrels was negatively impacted by the unprecedented calendar month average roll differentials during the quarter, which cost us an estimated $11 million compared to historical average differentials.
Most of this cost was realized in May and June settlements and the different differential has come in significantly in July.
This is a standard pricing mechanism for the industry. While this loss is not expect.
Back to be made up this year. It is also not expected to continue.
Finally for crude we benefited from contango storage for a portion of the quarter. However, the forward curve has flattened considerably and we do not expect to see any significant contango for the remainder of this fiscal year.
So from an earnings perspective crude generated 31 billion of adjusted EBITDA, We have deferred earnings estimated at 16 million to be recognized later this year, most likely second quarter.
We lost approximately 11 million compared to historical results from the C.M. <unk>.
Moving to water water adjusted EBITDA was 57 million for the quarter.
Let's build the barrels averaged 1.4 million barrels per day during the quarter as volumes declined significantly in may.
Delaware Basin volumes totaled 1.1 million barrels per day, approximately 80% of total volumes.
Eagleford volumes averaged 95000 barrels per day down 64% compared to last year I've been the most impacted by the decline in prices rigs and production shut it.
We're expecting a slow recovery of volumes in the space.
D.J. volumes were down as well to about 132000 barrels per day compared to about 170000 barrels per day in the comparable quarter last year.
We received an average is though the fee of 63 cents per barrel for the quarter very consistent with pricing in prior quarters.
Of note, we did not sell Oliver skim oil recovered during the quarter instead, we utilized for storage at each facility to hold barrels and we've been and we've been selling those barrels at higher pricing during the current quarter.
The should be a nice benefit to the second quarter. When we are expecting about $4 million of incremental revenues.
Our skim oil volumes remain hedged for calendar 2020, with approximately 3000 barrels per day hedged at an average price just over $56 per barrel through December.
Operating expenses came down significantly and average 32 cents per barrel for the quarter, 25% reduction on a per barrel bases from last year.
We completed a significant reduction in headcount as well as reductions in chemicals, and other supplies and utilities costs.
Only benefited from these reductions in the last month or so of the quarter and expect to operating cost per barrel to continued decrease in the second quarter and beyond as we talk target opex per barrel at less than 30 cents.
Moving to liquids adjusted EBITDA for our liquids in refined products segment totaled 12 million this quarter.
Volumes for propane were strong through the quarter compared to last year as we saw little to no impact in propane demand as a result, as a pandemic at this time of the year.
Retain refined fuels and other ones were down compared to last year, primarily as these products to utilize and transportation.
We've seen a pickup in volumes heading into the second quarter. However, we continue to be cautious on our volume expectations for these products this year.
Product margins were generally in line with our expectations during the quarter. Because this is the period that we are building inventory and preparing for the blending and heating season.
Overall, our quarterly results were impacted by the pandemic like many others. However, we took the opportunities to capitalize on our asset positions and maximize value most of which will be recognized in future periods.
How those items been fully reflected in the first quarter financial results would have been more in line with market expectation.
Based on these results and expectations for the rest of fiscal 2021, we're adding a range to our adjusted EBITDA guidance of 560 to 600 million.
Turning to capital expenditures and cash flows our growth Capex totaled approximately 21 million for the quarter. As we are completing the water infrastructure projects, we started last year, including the poker lifetime for Exxon, which we expect to bring online this fall.
We have entered into incremental acreage dedications recently that require minimal if any growth capex to meet the producers disposal neat.
We have made no changes to our target growth Capex for fiscal 2021.
No we didn't find a significant amount of our growth capital expense managers that were incurred prior to enter crude on March 31, 2020 coming into this fiscal year as well as approximately 66 million of the 100 million remaining for the deferred purchase price of mesquite.
The remaining 34 million from Husky will be funded Ratably through December 2020, and has been accrued on our balance sheet.
We also focused on reducing our maintenance capex, which came down again in the first quarter to $9 million.
Our combined capital expenditures forecast remains approximately $100 million for both growth and maintenance capex for the entire year.
Our common unit distribution of 20 cents per unit for the quarter 80 cents per unit on an annualized basis was declared a couple of weeks ago, along with our preferred unit distributions and will be paid on August 14th.
We continue to expect F. Why 2021 coverage to exceed two and a half times based on our adjusted EBITDA guidance.
It also continue to expect fiscal 2021 to be free cash flow positive with excess cash flow used to reduce indebtedness and improved leverage.
Our leverage remains around 5.3 times at June Thirtyth, and we expect to stay at this level for the next couple of quarters under current operating conditions.
We're also evaluating other opportunities to reduce leverage including joint ventures and noncore assets.
Finally, as a general matter, we do not generally comment on pending litigation.
However, as many of you are aware one of our customers is taking the steps within this chapter 11 bankruptcy to attempt to reject our transportation contracts related to the Grand Mesa pipe.
Unfortunately, those contracts are currently subject to litigation.
Last week, we filed an objection to their motions to reject the two contracts and we separately filed a motion to lift the automatic stay so that we can seek the proper input from FERC, which we believe has jurisdiction over the contracts.
The hearing related these matters of stuff with the court for September Threerd.
Obviously, our filings are public record and you are welcome to review them basically at this time I cannot add anything additional here that isn't contained in those filings.
As in any disputed matter NGL is always an amicable to resolving matters and a commercially reasonable way, but there are times, where we owe it to our unitholders to seek validation of our contractual rights and use the course deduce, though and we believe this circumstance is one of those matters.
So we will be considering all legal possibilities with respect to defending the value in these contracts for our stakeholders.
That concludes my prepared remarks, I'll turn it over to Mike.
Next right.
The past quarter presented us with many challenges and opportunities, which we have been managing like all of our fears and most companies in general.
We have seen unprecedented volatility in crude prices other commodities significant reductions in demand for crude refined fuels in certain liquid products and an increase in upstream producers facing significant financial difficulties.
We have taken numerous steps to reduce operating costs and capital expenditures, while optimizing our assets.
We've been working closely with our producer customers make sure we're meeting their operational needs and helping them to mansion in this environment as well.
We took advantage of an extremely steep contango crude environment April may only to see the forward curve flattening considerably in June and through July.
Traits that a significant portion of our profits are embedded in our inventory at June 30, and we expect to recognize these margins when the product is sold in our second quarter.
We held skim oil barrels intake and expect to monetize those in the upcoming quarter as well and higher average prices that we saw throughout the first quarter.
We have also taking this opportunity to add acreage dedications expand our market share and further solidify our core operating areas in the water solution business.
In the Delaware Basin, we have all of our large diameter pipe online and flowing water.
The 24 inch Lex pipeline East to Andrews County, Texas in service.
The 24 inch WEX pipeline from Eddy County to mental and Texas is operational.
As is the 24 inch oral express from Lea County to men town.
Our new 30 inch pipeline in southern Eddy County, South to Texas is in service and flowing water as well.
As a major milestone for NGL as these capital expenditures are now behind us.
Order volumes are currently increasing was additional substantial contracted volumes coming on the remainder of year.
As Tony mentioned, we have reduced operating expenses in our water segment.
Approximately $2 million per month, beginning in June, which we will continue to fully realize in our future quarters.
In closing we took this quarter to focus on items that we can control as we continue to visit physician NGL for long term success, focusing on the future while managing the short term obstacles and opportunities.
With that.
So we opened up for questions.
[noise], yes.
And as a reminder, if you would like to ask a question press star one on your telephone keypad now.
And we have a question from Pearce Hammond from Simmons energy.
Please go ahead.
Good afternoon, and thanks for taking my questions I. Congrats on some of the recent success with some of the acreage dedications and the Delaware Basin I was just curious what it wondered leading edge disposal fees right now.
You know within the Delaware Basin.
Doug I'll call, a new for that one, but I think there they are different in Texas versus new Mexico, Doug what are you putting thoughts.
The range in Texas is anywhere from 45 to 55 cents generally.
And some areas such as our Hillstone.
Loving County assets there.
Somewhere from that range, but maybe a little bit higher due to.
Unique area lack of electricity station power such as that.
So we do have higher rates in that area, new Mexico or with the Devonian wells, they're much more expensive to develop black of.
Reliable offtake can take away.
We see those prices range anywhere from the the lows of 55 cents to 80 cents.
You would imagine prices may have decreased during this downturn.
But we have not seen that we seen some very temporary rate reductions to help the producers.
But those rates.
Squint to the increase in commodity price I have gone back up to pre pre cove at levels.
Okay. Thank you for that and then.
Mike can trade I, just wanted to expound a little bit upon your prepared remarks comments on asset divestitures and potentially joint ventures to help reduce leverage.
What are your thoughts there, what's the sense of timing, what's the market like for that right now.
What do you try to go ahead, yeah. So so thanks Pierre soon.
As we've done historically, we were always looking at opportunities.
It is a more challenged market.
However, we are seeing it improve.
We've got some so the significant opportunity ahead of us as well.
With.
In particular with our water business, but really across all of our lines of business.
So those are things that we continually evaluate and would expect to do so in these circumstances as well no generally speaking.
The the multiples that we will look it would look out for those types of for those types of transactions.
I have to be deleveraging.
To make an impact.
So that's what we would be targeting.
So I would say nothing is on sale.
Yes.
Yes.
Okay, Great and then if I could squeeze one more in just what's the latest update on poker Blake.
Doug.
As Mike stated previously our 30 inch pipeline is.
In the ground and taking water.
We are timing of that development is unchanged from previous discussions.
That's all we can say about it currently publicly.
Okay. Thank you for takes pressure take.
Thank you.
And once again as a reminder that is star one for question.
And we have a question from James Spicer from TD Securities.
Please go ahead hi, guys.
Hi, guys good afternoon.
Oh, the the reduction in guidance or they did the addition of the range to the guidance Fivesixty the 600.
I assume that reflects the 11 million onetime hit that.
Yeah. It doesn't look like you can get that one back is there anything else built into that range that we should be thinking about.
Thanks, James So yes. It does include the onetime item and crude the other commentary I, what I would add to that is that when we put the guidance out initially in April and then reiterated.
At the end of May there was an extremely steep contango, which continued through may that obviously disappeared in June.
We do not expect contango to come back the during the second half of this year and into next year. So.
We've removed the expectations or any significant contango.
Barrels being held which will help from a working capital perspective to reduce working capital needs, but obviously has in the impact of not generating incremental EBITDA either so we captured contango during the first quarter.
When we gave our original guidance, we expected to capture some contango.
Throughout the year and at this point of time, we're not expecting that otherwise no other real changes yet, but I wouldn't I would just add it's we're really in this transition period, you're going to have significant contango, you're going to have low crude prices.
Which is certainly not good for future crude water production. So we're in this period here I think some of our peers talked about.
Thanks.
Over $40 is a good thing you're not going to have contango.
Fiscal 20 or calendar 21 is close to $45.
So this should lead to some rigs being put back into service.
We think no later than the first calendar quarter 21.
And it May mean, we get some ducs completed in the last half of this year. So.
Rather have a higher crude price in the contango.
Yes, I understand okay. That's helpful. Thank you.
Your next question comes from the line of Patrick.
Gerald from Baird.
Please go ahead.
Yeah. Thanks for taking the question is there any way you could help us with.
You know kind of.
Well it seems.
Like.
The obvious question about the capital structure.
Extend maturities and 21, what's what's your plan to refinance.
No all started to substrates so.
Our 2021 maturity is our credit facility its a.
So its October 2021, our expectation is to have that extended prior to and going current so thats something that we've we've been working on we've been in communications with our Bank group, we expect the banker to be constructive.
There are a couple unknowns that we've been working through including we did the re fi of a term loan.
Completed that with Apollo.
Back in June so that we needed to complete that and then.
The recent bankruptcy filing we've been working through that as well so.
This is something that is the number one priority of the at the finance team.
Expected to be extended Thats, something that a that we're working through.
Okay.
And.
You bought back some bonds in the quarter it looks like.
I mean is do you do you.
Plan to use capital for that purpose throughout the remainder of the year.
Given where these prices are.
So so we've always evaluated our bonds in the open market for opportunity.
We bought those bonds at less than 50 cents on the dollar we've done that in the past as well we did that in 2016.
So that's something that we continue to evaluate a.
A lot.
Factors go into that decision on on what is the best use of capital what do liquidity needs look like how does it impact leverage what are our maturities. So all of those things are Wade.
I wouldn't take anything off the table, but I wouldn't say that that's a core strategy.
Okay.
And then the 560 the 600 guidance.
With.
That I mean, how much of that factors in.
What's going on at the bankruptcy proceedings in mobile and the litigation.
So that's our latest expectation.
At this point in time, both parties are operating under the existing contracts. So at this point in time, that's what's factored into our guidance.
And again, we hope that range, we are you know.
Going on the fifth month of the year so.
Is this continues it continues to operate under the existing contract structure.
Okay is there will.
You don't see thing.
No go well, obviously that probably doesn't impact.
If things go against you would you is there any range you can provide and know how much that would impact that can be.
So when we provided our our expectations for the year, we expected so I expect it to 5% to 10% reduction in volumes on Grand Mesa from last years results. So last year was about 130000 barrels a day.
So assuming about a 10% reduction would be about 117000 barrels a day, we're running just above that.
So we attempted to factor that in most of the volumes on Grand Mesa are under Nbcs, we attempted to factor.
This situation into our overall guidance.
I think thats, what I can say publicly and what's what's been stated previously as well let me add to that was that this is an area that we've seen some.
Misconceptions to be nice in some of these.
People, who volunteer their opinions on the Internet.
It's not only a <unk> EBITDA issue, you're going to either have a contract.
So you're going to have a very large unsecured claim which results in ownership.
Or both.
And if some of which you have is ownership than that.
His positives you might say to your leverage because you're going to sell and pay down debt.
So it's it's hard for us at this point to decide to determine where where this thing is going is there going to be.
Again, except the contracts are we going to own a bunch of the company.
Are we going to reduce that is EBITDA going to be the same or less just we just can't say I mean, we have no idea, but you don't end up with nothing.
Which is what some of the.
Some of the folks on the Internet have set.
Yeah.
Gotcha, well I appreciate you answer that question. Thanks.
Yep.
Your next question comes from TJ.
Schultz from RBC capital markets.
Please go ahead.
Great. Thanks, Hey, guys good afternoon.
Just on that last one on the on the Grand Mesa contract has there been any discussion too.
Negotiate a lower NBC to provide more flexibility or is it at this point just a full accept or reject decision to the court and then going through with the unsecured line.
[noise] quite easy thing to say is we have.
Not spoken to any one.
Representing or the bondholders themselves.
So it's hard to negotiate with the coast.
Okay understood.
Just a question on on their exposure for your water segment.
If they are able to reject their water disposal contract how material is that to you all if at all.
TJ I would call it.
Minimal.
Yes.
DJ DJ basin, we have a very large.
Area dedication with lots of producers.
Yes, I would not call.
Significant to the company or to the DJ I understand.
Okay understood just last on them in on.
For the water segment the Opex.
For a barrel add in I think you mentioned a partial benefit in this last quarter and then.
If anything into the September quarter.
Maybe with a full quarter benefit would you expect to get hit that sub 30 cents. This quarter or is there so more to do through throughout the year to fully realize that thanks.
Yes, we would expect to be at that 30 cents for this upcoming quarter and this day at or below that level on a go forward basis.
Okay, great. Thanks, guys take TD TJ, Mike just that I'll add to that for your first question on the water contract again.
You don't end up with zero value. So thats just increases continues to increase our unsecured claim.
No I understand I appreciate it yes.
Thank you Jay.
And that is showing no further questions in the queue at this time.
Again, thank you everybody for you for your interest and we look forward to talking to you on the next earnings call.
Have a good evening. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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