Q4 2021 NGL Energy Partners LP Earnings Call
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Pardon me. This is the operator today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good day, and thank you for standing by and welcome to the fourth quarter fiscal year 2021, NGL Energy Partners LP earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the.
Session, you will need to press star 1 on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I will now hand, the conference over to your Speaker today trade Karlovic Chief Financial Officer. Please go ahead.
Thanks Carmen.
As a reminder, this conference call includes forward looking statements and information words, such as anticipate project expect estimate plan goal forecast intend could believe may will and similar expressions and statements are intended to identify forward looking statements.
<unk> Energy partners LP believes that its expectations are based on reasonable assumptions there can be no assurance that such expectations will prove to be correct.
A number of factors and risks could cause actual results to differ materially from the projections anticipated results or other expectations included and the forward looking statements.
Certain of these factors include changes and general economic conditions, including market and macroeconomic disruptions and related governmental responses the price.
This is a crude oil natural gas liquids gasoline and diesel biodiesel and energy prices generally.
And the general level of demand and the availability of supply for crude oil natural gas liquids gasoline and diesel and biodiesel.
The level of crude oil and natural gas drilling and production and areas, where we have operations and facilities.
Fact of weather conditions on supply and demand for crude oil natural gas liquids gasoline and diesel and biodiesel.
Availability and cost of capital and our ability to access certain capital sources and political pressure and influence of environmental groups upon policies and decisions related to the production gathering refining and processing and fractionation and transportation and sale of crude oil and natural gas natural gas liquids gasoline and diesel for.
Biodiesel and other refined products.
Other factors that could impact these forward looking statements.
Our described and the risk factors and the Partnership's annual report on form 10-K quarterly reports on form 10-Q, and other public filings and press releases.
You should not put undue reliance on any forward looking statements.
All forward looking statements speak only as of the date hereof, and except as may be required by state and federal Securities laws. We undertake no obligation to publicly update or revise any forward looking statements.
As a result of new information future events or otherwise.
This conference call also include 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 annual report on form 10-K, and quarterly reports on form 10-Q 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 measure.
This information is also available on our website at Www Dot NGL energy partners Dot com under the Investor Relations tab.
Thank you for joining us for our fourth quarter and fiscal year and 'twenty 'twenty 1 earnings call I will cover our financial results for the year and some of the drivers of those results and then turn the call over to Mike to discuss our initial sustainability report and give our closing remarks, we will then open it up for your questions.
We reported a net loss in fiscal 'twenty 'twenty, 1 and a 637 million, which included the following 1 time items crude segment goodwill impairment of $238 million and intangible asset impairment of $146 million, both of which were driven by the extraction and bankruptcy and ultimate settlement and were recognized in the fiscal third quarter.
Additional long lived asset impairments and the water segment totaling $84 million recorded and the fiscal fourth quarter related to obsolete and underutilized assets, none of which were in the Delaware Basin.
And transaction costs of $103 million related to our refinancing that are required to be expenses and also were recognized in our fiscal fourth quarter.
Our adjusted EBITDA from continuing operations for the for the 2021 fiscal year totaled $448 million compared to $589 million and fiscal 2020 day.
The most significant variances include the Grand Mesa volume decline driven by extractions bankruptcy, and a decline and DJ basin production, resulting in a $75 million decline and adjusted EBITDA from our crude logistics segment last year.
Water volume has declined significantly and the Eagle Ford and DJ Basin, and also declined slightly in the Delaware basin compared to fiscal 2020.
We were able to reduce operating cost per barrel to offset this decline in volumes and actually grew water solutions EBITDA by $9 million year over year with full year contribution from Mesquite and Hill stone acquisitions.
Demand for natural gas liquids, primarily butane and refined fuels were severely impacted by the pandemic and drove a decrease of 80 million and adjusted EBITDA on our liquid segment compared to last year, which I'll remind everyone was a record year for this segment.
We also saved almost 5 million this year and corporate and other costs compared to the prior year and that is after incurring approximately $6 million and costs to defend the extraction contracts throughout the year.
Our fiscal fourth quarter results were impacted by the following crude logistics continued to be impacted by lower volumes on Grand Mac Grand Mesa as we sell the extraction bankruptcy in January and and not see volumes returned to the pipeline until February. This segment also incurred some financial derivative losses on its inventory position that we expect to benefit from and fiscal 2022.
And 2.
Winter Storm Yuri resulted in a pretty significant shut in volumes and the Delaware basin for about 2 weeks, which negatively impacted our water disposal volumes during the period and.
Additionally, the storm impacted producers' drilling programs and ultimately the increase in volumes, we were expecting and the second half for the quarter.
We also incurred some incremental operating costs are on generators and keep our system operational through the storm, which increased our operating cost per barrel during the period.
The good news is that we are seeing volumes pick back up including demand for fresh reuse and recycle water and the basin through April and May.
The winter weather and pattern also impacted our liquid segment as we saw propane prices spike and February, causing the steep backwardation and the propane price curve through March this price and price move had a slight negative impact on our net inventory position when considering our financial hedges that offset any benefit we recognized during the polar vortex and fed.
Fury.
We manage through the past year and all the challenges that presented and like many of you. We are looking forward for the upcoming year and the opportunities in front of US. We believe there are a handful of important factors that will drive our earnings for next year and beyond that you should pay a specific attention to as you assess NGL and our performance.
First Delaware basin oil production and completion activity and the associated water will be the largest driver of our performance next year we.
We are seeing increases and other basins as well, but the Delaware basin is easily the most significant and important.
Disposal disposal volumes will continue to be the largest driver, but we are also selling produced water for reuse and recently started our first large scale, Delaware Basin recycling project and Lea County.
Next DJ basin production growth will also be important most notably from the combination of extraction and Bonanza Creek as our most significant contracts and the crude logistics segment or with those producers and we will be tied to their production volumes on Grand Mesa.
Third a strong recovery and demand for refined products and blending feedstocks, most notably butane to pre pandemic levels will be important for our liquids logistics segment to generate incremental cash flow compared to last year.
We will also continue to focus on cost reductions across our segments and at the corporate level and minimize capital expenditures to meet our operational needs.
This will be the most important metrics for us to maximize our earnings and cash flow and drive deleveraging of the balance sheet.
We invested significantly in the years, leading up to the pandemic and commodity and the commodity price collapse, and we'll be working to maximize the earnings potential of our asset base and fiscal 2022 and beyond.
Our liquidity position is much improved from last year, and we have a few years to manage our debt balances and maturities are.
Our focus will be on repaying, our 2023 notes, which mature in November of 2023, as we earn excess cash flow.
We will also evaluate noncore asset sales and other options to reduce indebtedness, we do not have a timeline set out to reinstate preferred or common distributions.
But we understand and appreciate the importance of both and will be working diligently to improve the balance sheet and ultimately increase stakeholder value.
I will now turn the call over to Mike to cover our sustainability report and give his thoughts and our closing remarks, alright. Thanks Trey.
I'd like to provide a few comments on the ESG front as we mentioned in previous calls we have been working on gathering data and information in order to give you a picture of some of the things. We do every day to NGL from a sustainability perspective.
We are excited to share this with you on our.
Inaugural report, which should be posted to our website within the next week and the meantime, let me give you a couple of high level thoughts.
First of all we look at our sustainability journey as a tremendous opportunity.
As you will see our assets and capabilities give us a unique position to help improve air and water quality.
Assist our customers and decreasing the amount of fresh water, they use and operations and enhance the extensive natural habitat we have on.
And when you think of our businesses, particularly our water solutions segment, which includes our extensive ranch holdings, where we own or lease over 200000 acres of ranch land.
And it's easy to envision and the opportunities to enhance the environment conserve water resources improve the land holdings and explore opportunities to sequester carbon and protect wildlife.
What is also important keep in mind is in many cases, our efforts and initiatives are done in collaboration with others, we collaborate and partner with communities not for profits industry partners and government agencies and.
We think these partnerships are critical for our success and lead to the most sustainable solutions.
You will see a number of examples of this type of outreach and our report.
A few specifics included the REIT and the report include the following.
Through the build out of our extensive water pipeline system, we have either eliminated or avoided millions of truck miles positively impacting your quality and roads.
And the area of water conservation.
We provide recycled and produced water to our customers for use in their operations, thus, reducing the need for fresh water and the last few months, we've provided between 100000 and 150000 barrels daily of such water.
We are focused on fit for purpose water reuse, which is where we were.
For produced water is treated to a standard appropriate for specific applications, such as non consumable agriculture or growing plants to sequester carbon.
NGL was the first to pledge financial and and King kind support for the New Mexico produced water resource consortium committing $1 million to this effort at its outset and 2019 the contribution.
<unk> represents Ngls commitment to science based decision, making collaborative industry academic and government partnerships, all working towards sustainable and safe wastewater treatment and reuse solutions.
Consortium is a collaboration between new Mexico, Environmental Department, and the New Mexico State University. The consortium is working to advance scientific and technological solutions related to the treatment and reuse of wastewater generated by the industry.
For the.
Land conservation opportunities with respect to our ranch's are expanding we are collaborating with the state and federal land managers wildlife agencies and others to improve the habitat for stock raising non game and game wildlife species as well as increased need for grass growth and distribution.
Finally, 1 of the things we are most proud of is the implementation of a program earlier this year that.
And instituted a minimum wage of $20 per hour for every 1 of our full time employees. We have always believed that our employees are most portion and Portland asset and this program is a reflection of that.
And so with that Trey back to you and great. Thanks, Mike.
That concludes our prepared remarks, we will now open the call up for any of your questions.
Thank you and us having in mind Dare to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question comes from Tobey can meet with J P. Morgan Your question. Please.
Good afternoon gentlemen.
Hi, Terry.
Could you, maybe just talk a little bit more specifically about sort of the dollar impact to some of those winter storm Yuri impacts I think it's sort of easier to understand the sort of water solutions impact on maybe just a little bit of help on the crude oil logistics and thinking about the sort of quantum and we can sort of blame on the on.
On the weather versus the quantum that sort of relates to the kind of tail end for extraction.
Okay.
Sure so from a crude oil logistics perspective again, a portion of the impact was from winter storm here as it relates to.
And we do market and.
Buy and sell barrels out of the Permian basin, which was impacted and additionally, our transportation assets and the Gulf coast were impacted by the lack of activity and.
And just the declining and.
Volumes and during that period of time as well as the subsequent recovery.
Yeah.
That.
And that did have an impact on our crude logistics segment, we have not we're not haven't disclosed the quantum of that.
It was.
I think the bigger driver for crude logistics was still volume on Grand Mesa, and the timing and.
Amount of volume that ultimately has flowed from extraction when they came back online in February.
Okay. That's helpful.
And then you know as you talked about you made obviously from some pretty positive remarks about sort of the outlook rulings and kind of passed this quarter.
But you did have guidance out for fiscal 'twenty 2.
And 7600 should we still think of that guidance given some of these impacts from transitory as being.
Valid or is it maybe.
And trending toward the lower and the guidance at this point.
Yes.
We have not changed our guidance that guidance was put out in January.
No change at this point and time and no expectations to change at this point and time, obviously it is the first of the year, we are seeing volume increase and the water segment than we anticipated we're seeing volumes back on line on Grand Mesa, and obviously 60, plus dollar crude price is beneficial.
<unk> will be the items that I pointed out we need to continue to see.
Growth in production and the Delaware Basin, and the DJ basin to support those large assets.
And the Grand Mesa pipeline, and the DJ and and the water platform and the Delaware and those are going to be the biggest drivers.
Obviously, our liquids segment.
And as impacted over the past year from from a demand perspective, we're seeing a pickup and that activity as well.
And that needs to be sustained and then obviously our protein business is still impacted by.
The winter heating season and so.
Those are going to be the drivers to focus on.
Got it.
And just last 1 for me.
You touched on the on the first big recycled water project from the County, and maybe just talk a little bit about sort of.
Your current and sort of percentage of recycled water volume and sort of what you're kind of ultimate goal is on the system over the next couple of years.
So I'll start and Mike. Please please that and so this this.
1 projects recycling about 120000 barrels a day initially.
So that's the initial projects. So it is as a significant scale project.
And I don't know if we have a specific goal defer to Mike on that on how many barrels or what percentage, we would look to recycle, but we are looking to to grow that business with the producers.
This expertise that we've had for a long period of time, we have done it obviously and some of our other basins to a larger scale we have been.
Promoting this with producers and the Delaware basin, and that seems to be and opportunity that will.
And we'll be able to take advantage of like I don't know if you want to add to that.
Yeah, I would add that the producers seem to be more comfortable using the raw produced with them.
And with some.
Minor treatment.
And so we're seeing that.
And I'll say the demand and the futures increasing so as we said we're at 100 to 150000, a day right now as a percentage of produced water.
Total water.
That will be about on the $1.50 side that'd be 10% of what we.
What we.
Disposed of and the fourth quarter, but that.
That water will have to keep go on that quite a bit to keep going up to maintain and tenor percentage better.
But I think that's certainly the trend that we wouldn't expect it to growth decrease.
Got it thanks, I'll jump back in the queue. Thank you.
Thank you. Our next question comes from Philip Ashman and with Aurelius. Your question. Please.
Hi, guys 1 question on.
On the crude logistics segment.
It seems like and Mitch.
It's part of the guidance a little bit due to that segment and.
You said for some of them Doug was just from you.
You've already but was there any like did they extract some volume come back later day.
And what you were expecting and that impacted the guidance or were you saying that.
<unk> for the year over year comparison.
Primarily the year over year comparison for US again their volumes have come back online they were not at the level that they were when they went offline last winter.
They have brought on incremental production.
They have.
Announced and what their drilling plans are and their production plans are for this year again, we do know we no longer have and NBC with extraction.
And so we are strictly tied to their volume of production, we do have a dedication and.
On the deep and the DJ basin. So all of their production essentially comes to us.
But the key will be based off of their production now rather than and MPC.
Additionally, we mentioned that we did have a financial derivative loss that we realized during the period with the run up and commodity prices that we took and the fourth quarter.
That we believe better positioned for that business going forward.
Got it and in terms of and.
And back on some jewelry as all the production and the volumes have day normalized at this point or are you still seeing that.
And below what you were expecting and accretive storm.
We believe the volumes are back to where we were we had expected them again that most of that impact us and our water business.
There was obviously a about a 2 week period, where volumes were significantly offline.
We started to see those volumes come back however, it delayed completion activity and some drilling activity.
It did it have it and impact into March and.
Call. It early April timeframe, but I believe we're seeing volumes back to where we expected it and it would be at this point and time.
Are you basically saying that and.
And secondly, the entire Miss what do you do some jewelry are there other factors as well.
I think the water volume impact was pretty much driven by storm Yuri I think there was also some incremental costs that we incurred associated with our system related to the storm that would be the pri.
Primary drivers.
Got it okay. That's helpful. Thank you.
Yes.
Thank you. Our next question comes from Jason Stewart with Steward holding your question. Please.
Thank you gentlemen.
First question is for Trey.
And on last quarters call you mentioned that.
And so <unk> was able to renegotiate for there.
Rates on Grand Mesa.
And that our price adder that kicks in and around $50 a barrel.
And would begin to offset that and.
Like around $60, a barrel, we should expect to get back to historical rate of 440, <unk> does that price and or have a maximum limit or phase out on the upside or should we expect.
NGL too.
Realizing benefits us.
<unk> rates go up.
So so we talked about the price on our kicking in and $50.
Has been a benefit as prices have gone over $50.
Again, as we've talked before at.
60, plus dollars for back closer to where our prior.
Rate was on the contract.
And what I'll say about that contract and.
We have not disclosed all the particulars and neither has extraction, but what I will say is it is similar to the Bonanza Creek contract.
Okay.
Alright, and then an hour.
You made we mentioned last quarter and also Mike.
And then started telling us about the produced water sales and you've mentioned earlier on this call from produced water and some other.
<unk>.
Programs that are ongoing.
Those new revenue new revenue sources and.
And.
When when can we expect to see some more detailed financial results and this water segment breakout those various revenue sources.
And.
Yes, those are new and they really started up and our first quarter. So you should see those numbers and the first quarter Q.
Okay.
And then also.
Trey for free.
And you last quarter, you mentioned that there were certain contract provisions.
That allowed producers should retain more of the skim oil from produced water as we and a contributing factor to lower skim skim oil revenues.
Can you give me some more detail on how much processing and removal minerals substances customers do before transferring that produced water to NGL and.
Give some insight as to what Ngls ownership rights are to that produce water. Once it's turned over like the mineral and substance content.
Sure sure Jay so.
Vary somewhat by a producer some of the larger more sophisticated producers that are doing most of their own infield gathering they will put systems in place to try to get out as much of the oil as possible and in those cases, we get a very small amount of skim oil.
And generally speaking, we will get a little more skim oil from from flow backwater than we do from produced water, which we saw that last year.
And we're seeing a bit of and an uptick and that as production is ramping back up and drilling activity is ramping back up but it is producer by producer specific.
And I think our average skim oil recovery rate was about 13 basis points last year.
I would not expect it to deviate significantly from that level.
And as we bring on incremental barrels and some of the more trucked basins you could see that number go quite a bit higher but again as youre, bringing on larger volumes from the Exxon and the EOG and the depths of the world those.
Producers are much more sophisticated and will strip out as much of a liquid skim.
Skim oil as they possibly can now once the skim oil gets to our.
Our system.
It is generally speaking ours, there are a handful of contracts that allow the producer to recuperate.
On the skim oil.
We recover on therapy have that as a pretty small number but there have been some contracts that had been set up that way.
Most of those have been acquired by NGL Theyre not contracts that we've put in place.
So, but generally speaking we have title to.
And all of the product that we receive at the transfer point.
Okay, and what what about what about the other.
Mineral content, lithium and not where I'm kind of go on with this is towards.
This trend toward companies do and direct extraction of lithium and.
Hydrogen and other valuable substance is out of the produced water.
And I'm trying to kind of gauge what what's the Ngls direction on those type.
Projects, where we might find other ways to monetize the produced water and new revenue sources as well as ESG policy.
Benefits.
Sure.
Historically looked at what other minerals, we could extract from the water.
And then and economic way.
We have found that.
There are some that could be extracted, but and such quantities that they would actually.
Depress pricing and those markets to the point, where we don't think it would become economic we have recently looked at lithium but at the moment, we don't see lithium being expected economic.
So at this point, we don't we don't have any.
Additional minerals, we think that we can extract economically, but but contractually and it made.
From from producer to producer, but contractually we should.
Expect that things other than skim oil would remain and that produced water, but theyre not going to extract it before.
And over to NGL.
I mean, they could extract anything they wanted to until they give it to us okay alright.
But once we have the water, yes, and minerals remain and the water and if.
We can figure out a weighted constructed economically we would fans.
Fantastic. Thank you gentlemen.
Thank you.
Our next question comes from fed handle and Sir with Apple Inc. And your question. Please.
Good afternoon, gentlemen, my first question is intrepid potash and their earnings call mentioned that day purchased.
Water and from third parties.
You can fill their contracts and we assume that day that came from the partnership.
No you can't assume NAV that we do have a water.
Sharing agreement with them between their ranch, which is called the Dinwiddie ranch and our bedroom ranch, but they buy I think substantially if they have a lot of water rights and the.
My guess is day by substantially more water from others and us.
Okay.
Second question, there was a press release.
It's false or not.
NGL supply wholesale and acquired a pipeline up and Michigan for them.
Net cash from them on.
Energy and we assume that's correct right.
Non.
Well I think you're correct on both points there were several articles that said someone else bought it.
That was incorrect, we did buy that pipeline and yes, and we're putting in and propane service.
Bi directional.
So that we will be able to supply northern Michigan with whatever propane and they would like.
Okay and is there a price tag for that and we've got.
Confidential.
And looking around not.
Not disclosed on price, but what I'll say is it was not.
Cereal.
Or significant.
Yes.
There is some some incremental disclosure and our 10-K around it but again is it going on a significant transaction that we disclosed a number anywhere.
Oh, Okay, now, we're saying, we we haven't disclosed it but it's.
It's not a big number.
Okay.
And finally, I guess for Mike and <unk>.
We're given the opportunity.
Eliminate all of the partnerships short and long term debt.
Which of the 3 sectors would you say on wine.
So for which the wood.
Would you sell any of the 3 segments and why Wouldnt sell any of the 3 I think we're and the.
Exactly.
Right spot all 3 businesses are.
Going from our.
And I think well they are performing well there and the right places and.
We're just not going to be acquiring we're not and the M&A game anymore and we are.
We're just going to have on capacity and not being utilized we just need to fill that up.
But no we would not sell any of our.
Our 3 segments.
Okay.
And I guess finally on.
I know that all of the automakers there are becoming for electric by 2030 and some more.
By 2026, the Bay area announced that they're going to.
Issue and you more concern.
Collection permits for gasoline stations.
My question is where do you see the partnership 8.
8 years from now do you think.
It'll be a vibrant partnership.
With the 3 segments.
And really that's your view of fossil fuels and our view is not that fossil fuels are going to disappear and 8 years.
So.
Alright.
Sure.
I think we will be vibrant, yes, I'm feeling vibrant right now.
[laughter] okay.
Thank you gentlemen.
Yeah.
Thank you. Our next question comes from Alan for EGEN with Lone Star Capital. Your question. Please.
Thanks for taking my question guys I would like to focus on the $40 million consenting and you've made the holders for the class B preferred units.
And.
Under what contracts did you require that concern.
So as a part of our refinancing a requirement of the new bondholders as both for the Bank group was that we would.
No longer be able to pay and the restricted payments until our leverage leverage was reduced to 475 times.
<unk> payments includes distributions on preferreds and our partnership agreement.
And did not allow us to reduce the distribution on the class B preferred units so that had to be negotiated with the holders of the class fees and so that was.
And that was a negotiation with.
And the class D holders to.
Enable us to do.
Do the refinancings.
Given that your class D holders have a representative on your board.
I mean do you really think that they would have.
Objected to your refinancing given that there are junior classes of securities.
They were not included.
And.
They were not included in those discussions and negotiations with.
Older.
Because of independents purposes.
Are you, saying to me that the.
Note holders required you to get the consent and class Z preferred before they would be willing to finance.
To invest in 2026 secured notes yet.
Yes, we would have been in violation of our partnership agreement, we have not done so.
And a violation of the partnership agreement.
Cause.
What sort of ramification not like Theres a day.
Bolt on and that indenture right.
Not.
Technically.
That's probably more of a legal question.
But our.
And our partnership agreement is an agreement with all partners not just preferred holders. So the partnership agreement includes.
And at this point and class B class C class D and common unit holders and to enter into an agreement that is contradictory to what our partnership agreement and I would imagine would subject the partnerships.
Yeah sure Unitholder litigation.
So.
And I'm trying to understand that the parse through what you just said.
And would you have acquired the class B and class C. Preferred units were also subsidies partnership agreement to concern for this financing.
That was not required and the partnership agreement and they did not have a provision that would restrict us from not paying that distribution that distribution.
Is.
As perpetual cumulative and.
And so that for therefore, it did not require and.
And approval of those holders however.
The units are structured differently and did require that approval.
Okay, and then I think you noted.
And on driving that.
Okay.
Okay.
Okay. Thanks, good luck.
Thank you.
Our next question comes from James Spicer with TD Securities. Your question. Please.
Yeah, Hi, good afternoon guys.
And I wanted to start just a follow up on the price adder feature on that extraction contract I'm, just trying to understand a little bit better how it works and what the potential magnitude of the impact could be given that we're approaching $70 oil today I don't know if you can talk about the incremental benefit you research and received during the quarter or what do you expect that to be.
Going forward, but anything along those lines would be helpful.
Sure James I can share a little bit again.
The price.
And.
Went over the 50 dollar threshold and.
On a February time frame.
So we had 1 month, essentially where we had the benefit and Thats also win.
Okay extraction, and this case had a lower and lower volume on the pipe.
They have since had some completions that are continuing to ramp up completion activity.
And they expect to grow volume throughout the year, so that will be a benefit.
We have not disclosed what the exact terms of the outer or nor has extraction. So I'm limited on that from that perspective, but again I think I can refer you back to the Bonanza Creek contract and it is similar.
Okay. Thank you.
And then just on the extraction Bonanza Creek merger itself and.
You guys seen any updated plans from them are you expecting the.
Production for the pro forma company to be greater than the sum of the volumes you would have expected from each company individually.
I'll start and Mike Please chime in.
And when we announced the.
The settlement with extraction and I think Mike you had mentioned that we do see consolidation and the basin.
So we're not surprised and we think that.
No.
We think this is a good combination of companies that I think theres strength benefit each other.
So we are very supportive of the combination at this point and time I don't believe they've guided to any incremental volume and the near term from the combination so I don't see that being a.
Anything we should be looking out from here and the next 12 months, but we do believe that having a stronger counterparty.
And that continues to consolidate the basin.
As a benefit to NGL and Grand Mesa pipeline.
And anything Mike.
I would add that the.
I think we're seeing and certainly amongst the majors and some of the non majors.
And that they all will say prepare budgets last November October with $45 crude price and the appropriate number of rigs at that free cash flow level clearly.
And much more than that the majors have stuck to their I think their budgets some of the independents have added rigs.
I think in the DJ.
First year calendar 'twenty 1 is I.
And I think it should be viewed as a great opportunity to repay a significant amount of debt.
And then I think we'll just wait and see what happens in calendar 'twenty 2.
And if these prices are maintained over 60 or 65.
If they are going to be.
Add additional rigs or not.
But at this point, we see the same information you do on Bonanza and the.
Extraction and.
And we don't expect extraction.
To change from and I think they have a 1 rig program.
The model upstream is changing somewhat.
On a number of these companies view paying a dividend is appropriate.
So.
I don't really see any change this year, so 2022 will be.
The question.
Yep Yep, Okay, now that makes sense and I appreciate the color on.
My last question here is are you.
Yeah, you have EBITDA guidance out there for fiscal 2022, and obviously you'd water solutions is a big driver.
Can you tell us what you're assuming in your EBITDA guidance in terms of water volumes and the Delaware.
Well Ken.
Can we or Willie.
The question.
Yeah.
But go ahead Terry.
So.
And James obviously, we're expecting growth in the Delaware is going to be the driver and in fact are.
Current forecast does not really have any growth and the other basins. We are seeing some benefits in this commodity price cycle.
But the Delaware is going to be the driver.
We need to get those volumes.
Over and above where they were historically.
I think our expectation for this year is that those volumes will grow ratably throughout the year.
We don't see producers really.
Especially public producers really ramping up activity and the higher price environment, but our expectation is that at this price environment does sustain as we get into the fall and the budget season for 2022.
C H.
Pretty significant ramp.
Beyond this year so.
And.
I think stay tuned.
Our expectation is a pretty steady ramp quarter over quarter.
And and.
And that's where we're headed right now so.
I think what we've seen so far quarter to date, it's moving and the right direction.
And I think we feel good about where we are at this point in time.
But it's got to continue to grow throughout the year.
And I guess I'll add on.
And I will add this to trace.
Well I've got to move a little further away from him I guess, but.
Just kind of a centralized with our guidance at $5.7 years, and 600 water would have to exceed 300.
Alright, and make it to get there.
$300 million.
And I'll, just add James our rates and our opex per barrel they won't change significantly I would expect our disposal rates to be.
Pretty consistent with what we've what we've had in the past.
I think our operating expense.
And we've worked really hard to get that number down and we got close to 25 cents per barrel, that's really our target.
I think if we can achieve that level that would be a win for this year and that's really what we're focused on.
Obviously this past quarter, we had some 1 offs with the storm, but I think getting to that 25 cents per barrel keeping on disposal rates you should be able to go back and pretty reasonable volume number.
Okay. Great. That's helpful. I was just seeing what additional information you guys were willing to share and.
And that that that makes sense. Thank you.
Our next question.
From Jason Mandel with RBC capital markets. Your question. Please.
Hi, guys. Thanks for taking the question just wanted to focus for a moment on cash flow in 'twenty, 2 and use of it. So it sounds like the EBITDA guidance was effectively affirmed.
Capex for the same I think of 100 to 125 was the last guidance there yet.
No change there Jason.
Okay, great. So.
So without distributions were looking at some pretty significant anticipated free cash flow I think you made comment.
In the prepared remarks about use of cash flow being towards debt reduction and I know if you can give any further guidance it looks like and this past quarter. The spending was really on the unsecured 2006 is versus the front and bonds. So just how to think about discount versus maturity.
Yes at this point and time, our focus is on maturity.
We will be focused on the 20 threes that being said.
Yes.
Our bonds are not highly traded so sometimes it is to take what you can get.
We did it was still a pretty significant discount on the 26th.
Right around the time of our transaction and so that's what we did in the past quarter and we have a very small basket of what we can utilize for 2020 sixes. So at this point and time that focus will be on the 'twenty threes.
But that's something we have to address and we have to address it over the next call. It 18 to 24 months.
So I would add on.
And we add to that is when you look at the recovery and the.
And longer dated bonds and to the 85 to.
90 range $85.88, Theres really not a lot of deleveraging to be had there.
So I think it's we're shifting its more important to push out the 'twenty threes.
Very helpful. Thank you and then just 1 final follow up on that and the secured deal that was done you guys bought some room for second lien capacity is that something you just plan on reserving for now or is there any intention to use.
And.
At this point and time that we would reserve that but again.
We want to make sure we have have options and so we'll evaluate all sorts of.
Of opportunities here.
On the market dictates.
Great. Thank you for your help.
Yes.
Thank you. Our next question comes from Harold Weber with Aegis capital Your question. Please.
Yes, hi, good afternoon, guys I was hoping if you could try and maybe just.
And in a nutshell, what do you.
I've been here for years and years, we will look at this thing to whole energy space has gone up like Crazy and worried about them. What do you think it's going to take what type of attitude needs to change from discrete towards is what do they need what are they wanted to see before they come back to us and give us some credibility.
Improving here.
And you need to know.
<unk> for that.
Well, if you look at the thing for up to 30%.
Moving to and then back to 7 and our tool again.
Sure.
And I mean, I know you there and my what I know lots of stock and Tom Bucks and.
Right.
And all the way down and I haven't seen any manager and buy any stock late last awhile, but and I know you guys are there and we share that you wanted to see things improve but this has been a very painful and I'm trying to get an idea of how to look at those going for what do I tell my clients.
And just don't know how to respond to frankly.
Sure that's a fair question.
I think there's a couple of phases 2 and the first phase is we've got to get.
Leverage under $4.75 times.
And so there can't be any distribution reinstatement until that time.
Once we get down there and when we reinstate then we've got to get obviously the.
The.
Distribution to a level that will.
And it makes sense, if you're going to be a 10% yield you need to pay $1.10 Bucks.
So really that's the.
The second phase and where were all up.
Large owners of the units we have felt the pain.
As well.
So we are.
I think we've.
We're getting our EBITDA back to where it should be we're keeping capex low.
We are going to have substantial free cash flow, we can't say, how long it's going to take.
We're also looking at this train mentioned some smaller.
Pieces are really non core assets to sell.
So.
And we'll just delever as fast as we can and then we will reinstate.
Bringing state we have to first reinstate the preferred.
Distribution and.
And.
And then go.
Start again on the carbon I can't give you a timeframe.
But right now it's just watch leverage.
That's the key to when we can raise the distribution and reinstate.
Okay.
And I, certainly understand that but looking at the picture and energy space has gone up a lot how much I don't think and my people are expecting a very.
Substantive improvements from here, let's just say Leo opened it hangs around here that should have a very material effect.
For us or was there other things that we need to happen other than that though it maintenance and the market itself has improved so hopefully there's a demand for the services is ramping up as before but how does the math translates to where we were before we behind the 8 ball EBIT.
Can we start to expand on free cash flow based on weighted.
Our rates are currently.
Yes, I think we can't again, we didn't.
When we put out our current guidance, we didn't expect $65.70 crude.
I think.
Producers are being very prudent right now.
And with their cash flow.
They are focused on deleveraging and returning capital to shareholders.
We will be tied to the producer activity.
However, higher prices will drive volume and so.
And we said I think if we get through this year and this type of price environment.
And that's beneficial for the company and for our services that we provide.
And then additionally on the demand side.
You are seeing an increase and transportation activity whether thats.
Gasoline and jet fuel diesel et cetera that also has a benefit to us.
And the long term, but that has to be sustained.
Yeah.
Okay.
There were any you said you mentioned some non.
Core assets potentially you're looking at the sort of volume and probably some isn't that bad maybe use some of that to pay down day shorter term debt.
And I don't know if you guys are looking at that I am sure you are.
But.
Clearly.
The macro numbers and this space and doing better.
Like to see that we should be able to capitalize on that and we've been going through here.
Yeah, absolutely, let last year was not a time to try to sell assets.
As the market shortly and that things are much better and that things are much different new on and there was.
And the activity going on in this space.
Yeah. So so.
That's something that we will continue to evaluate and.
And we need to do that at a price level or evaluation Thats deleveraging.
Certainly.
Okay.
Thank you.
Thank you and I'm not showing any further questions in the queue I would like to turn it back to management for any final remarks.
Great comment. Thank you for your interest. Thank you for the time, we appreciate it and we'll talk to you next quarter.
Thank you and this concludes today's program and you may now disconnect.
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