Q2 2021 Rattler Midstream LP Earnings Call
2021conference 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 this session you will need to press Star then the number 1 on your telephone.
If you require any further assistance. Please press star then zero.
Now I'd like to hand, the conference over to your speaker for today, Mr. Adam Lawlis, Vice President of Investor Relations, Sir you may begin.
Thank you Julie good morning, and welcome to Rattler Midstream second quarter 2020 on conference call. During our call today, we will reference an updated investor presentation, which can be found on our website.
Any rattler today are Travis stice, the case, they're tough president.
During this conference call. The participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses.
Caution you that actual results could differ materially from those other indicated in these forward looking statements due to a variety of factors.
Information concerning these factors can be found on the company's filings with the FCC.
In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found on our earnings release issued yesterday afternoon, I'll now turn the call over to Travis Stice.
Thank you Adam welcome everyone and thank you for listening to Rattler midstream second quarter earnings call.
Rattler had a strong second quarter highlighted by cost control as volumes and operations normalized after the impact of the first quarter's weather events.
Both the operating business and our equity method joint ventures witnessed a return to trend.
In both volumes and earnings and the Rattler teams did a tremendous job in controlling capital and operating costs during the quarter.
Since the onset of the pandemic and the refocus of Rattlers and Diamondback operations on free cash flow generation over growth.
We are past the rattler organization with cutting operating expenses and capital expenditures to reflect the environment in which producer volume growth and its associated call on midstream capacity is limited.
While the progress on Opex was apparent this quarter Rattler also reduced 2021 operated midstream capex guidance by over 40% at the midpoint to $30 million to $50 million, which compares extremely favorable to the $240 million and $140 million of operating capex experience in 2019.
In 2020, respectively.
The net result of stabilized volumes and cash flow in conjunction with decreased Capex and contributions to equity method investments is the strong free cash flow generation revenues witnessed over the last year.
Since the end of the third quarter last year Rattler has used this free cash flow to completely pay down its approximately $85 million revolver balance.
While simultaneously funding 90 million of distributions and $30 million of common unit repurchases occur.
Accordingly from this strong financial position and peer leading low relative leverage profile and with improved confidence in the free cash flow trajectory over operated business and equity method investments.
<unk> increased its distribution by 25%.
$2.1 annualized per common unit, nearly a 10% distribution yield as of yesterday's close.
Although while the last year has been incredibly challenging for our industry through the labors of Rattler staff and an adherence to its conservative strategy Rattler has endured and emerged in a position of strength.
We look forward to continuing our focus on unit holder return on capital and a prudent capital allocation to drive value for all of our investors with.
With these comments now complete operator, please open the line for questions.
As a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jon Evans.
Hi could you just talk a little bit about the.
Stock buyback going forward since you increased the dividend so much does that change your strategy relative to buying back the equity.
Not particularly John you know I think I think overall.
We looked at our on net debt balance that went down.
$100 million over the last 4 quarters.
We still paid distributions and bought back stock over that time period, I think generally the stock doesn't have a tunnel flow. So we're a little limited on how much we can buy back, but we still stayed pretty active particularly in the last month on the buyback and you know I think.
<unk> is going to be a nice ancillary.
On a capital option.
Rattler.
Long with a steadying and growing base dividend. So overall definitely not salary on the buyback. We just felt with the amount of free cash that we have getting it back to shareholders about little higher distributions as well.
<unk>.
At along with our buybacks debt in place through the end of the year this year with the board.
It was very open to having discussions on that extending over time as a as a supplementary return on capital.
Got it and then May I ask you 1 other question just relative to your leverage et cetera, you've paid down the revolver. All you have is the bond debt. So if you continue to be this judicious with capital going forward I mean is there.
They're a place you want to get too relative to net debt or is it about coverage or kind of what's the goalpost there.
Yeah, I mean, I think I think we like to think of the revolver as a short term funding.
I think I think we feel very comfortable with the $500 million of debt outstanding on the bond side, particularly with the cat operating Capex coming down. So much you know I think we we didn't talk about it in the prepared remarks, but we do have a dropdown.
Working on from from Diamondback to Rattler I think generally we now feel comfortable that we can probably pay for that with cash on the rattler side and be able to.
No not lever the business up so youre using that revolver is a short term funding is the priority and you know I think the bonds trading pretty well I think it is trading at a price where next year should should rates stay where they are or we can refinance that cheaper and that just means more free cash flow into the 1 other.
Shareholders.
Great. Thank you so much.
Thank you John.
If you would like to ask a question press Star then the number 1 on your telephone keypad.
Do you have enough.
At this time.
I do apologize you have another question from John Evans.
I'm sorry can I just ask you 1 more question relative to the dropdown and so on.
Would you just would you just use.
The revolver to fund it will you fund it with equity to how would you think about that and I assume it will be accretive to rattler right.
Yeah, I mean, I think the key message is not using equity to fund. It you know we have the revolver balance.
Could easily tack onto our for our existing bond if we wanted to but or maybe you know it'd be something in between but generally I think with the amount of liquidity, we have and on our free cash flow we're generating.
How the equity looks expensive to us.
Raising equity.
<unk> is off the table for us to farm that dropdown.
Okay and then the last question I promise.
You guys did a phenomenal job on the capital side.
I mean is that just you've pushed projects out into 'twenty, 2 or is that really just the capital that you need for Fang staying at this.
Fourth quarter kind of production that they talked about on their call.
Yeah, I mean, I think it's a it's mostly the team cutting.
Cutting scope from the initial budget at the beginning of the year you know things.
Things are so you know, it's also coming in and they're a little bit but generally.
You know I think with.
We're saying not growing as much and rattler focusing on the penny.
It's just a lot of.
A lot of other things that add up to a pretty big.
The difference in this years.
Capital planning I think generally if the dropdown.
Happens there is some onetime capital spend in 2022 day to get ahead of water recycling and disposal in the new areas, but but long term I think you know getting back down to this.
You get to $50 million run rate, you know feels like a pretty good annual run rate if not lower for for rattler capital over over a long period of time.
Okay. Thank you so much and congratulations thank.
Thank you John.
As a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.
Yeah.
You have no questions at this time.
Yeah.
Thanks, again to everyone participating on today's call. If you have any questions. Please contact us using the contact information provided.
Yeah.
This concludes today's conference you may now disconnect.
[music].
[music].
Thank you for standing by and welcome.
Till the Rattler midstream Q2, 2021conference 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 this session you will need to press Star then the number 1 on your telephone.
If you require any further assistance. Please press star then zero.
Now I'd like to hand, the conference over to your speaker for today, Mr. Adam Lawlis, Vice President of Investor Relations, Sir you may begin.
Thank you Julie good morning, and welcome to Rattler Midstream second quarter 2021 conference call. During our call today, we will reference an updated investor presentation, which can be found on our website.
Representing rattler today are Travis Stice CEO for yourself President.
During this conference call. The participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses.
Caution you that actual results could differ materially from those other indicated in these forward looking statements due to a variety of factors.
Information concerning these factors can be found on the company's filings with the FCC.
In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found on our earnings release issued yesterday afternoon, I will now turn the call over to Travis Stice.
Thank you Adam welcome everyone and thank you for listening to Rattler midstream second quarter earnings call.
Rattler had a strong second quarter highlighted by cost control as volumes and operations normalized after the impact of the first quarter's weather events.
Both the operating business and our equity method joint ventures witnessed a return to trend.
In both volumes and earnings and the Rattler team did a tremendous job in controlling capital and operating costs during the quarter.
Since the onset of the pandemic and the refocus of Rattlers and Diamondback operations on free cash flow generation over growth.
We have tasked the rattler organization with cutting operating expenses and capital expenditures to reflect the environment in which producer volume growth and its associated call on midstream capacity is limited.
While the progress on Opex was apparent this quarter, rather also reduced 2021 operated midstream capex guidance by over 40% at the midpoint, the $30 million to $50 million, which compares extremely favorable to the $240 million and $140 million of operated Capex spent in 2019.
In 2020, respectively.
The net result of stabilized volumes and cash flow in conjunction with decreased Capex and contributions to equity method investments is the strong free cash flow generation revenues witnessed over the last year.
Since the end of the third quarter last year Rattler has used this free cash flow to completely pay down its approximately $85 million revolver balance while simultaneously funding $90 million on distributions and $30 million of common unit repurchases.
Accordingly from this strong financial position and peer leading low debt leverage profile.
With improved confidence in our free cash flow trajectory over operated business and equity method investments.
Rattler is increasing its distribution by 25% to $1 annualized per common unit, nearly a 10% distribution yield as of yesterday's close.
Although while the last year has been incredibly challenging for our industry through the labors of Rattler staff and an adherence to its conservative strategy Rattler has endured and emerged in a position of strength.
We look forward to continuing our focus on unit holder return on capital.
And prudent capital allocation to drive value for all of our investors.
With these comments now complete operator, please open the line for questions.
As a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jon Evans.
Hi could you just talk a little bit about.
On the stock buyback going forward since you increased the dividend. So much does that change your strategy relative to buying back the equity.
Not particularly John you know I think I think overall.
We looked at our on net debt balance that went down.
$100 million over the last 4 quarters, and we still pay distributions and bought back stock over that time period, I think generally the stock doesn't have a ton of flow. So we're a little limited on how much we can buyback, but we still stayed pretty active particularly in the last month on the buyback.
I think a buyback is going to be a nice ancillary.
On a capital option for rattler, along with a steady and growing base dividend. So overall definitely not salary on the buyback. We just felt with the amount of free cash that we have getting it back to shareholders is a little higher distributions as when we went public.
Along with a buyback debt in place through the end of the year. This year the board is.
Very helpful.
Having discussions on that extending over time as a supplementary return on capital.
Got it and then May I ask you 1 other question just relative to your leverage et cetera, you've paid down the revolver. All you have is the bond debt. So if you continue to be judicious with capital going forward I mean.
Is there a place you want to get too relative to net debt or is it about coverage or kind of what's the goalpost there.
Yeah, I mean, I think I think we'd like to think of the revolver as a short term funding.
I think I think we feel very comfortable with the $500 million of debt.
Debt outstanding on the bond plus particularly with the.
The cash operating Capex coming down so much I think we we didn't talk about it in the prepared remarks that we do have.
A dropdown, we're working on from from Diamondback to Rattler I think.
Generally we now feel comfortable that we can probably pay for that with cash on the rattler side and be able to.
Net level the business up so using that revolver is a short term funding is the priority and you know I think the bonds trading pretty well I think it is trading at a price where next year should should rates stay where they are or we can do.
Refinance that cheaper and that just means more free cash flow into the 1 other shareholders.
Great. Thank you so much.
Thank you John.
If you would like to ask a question press Star then the number 1 on your telephone keypad.
Okay.
Yeah.
You have no questions at this time I.
I do apologize you'd have a another question from John Evans.
I'm sorry can I just ask you 1 more question relative to the dropdown and so on would you just would you just use.
On the revolver to fund it will you fund it with equity to how would you think about that and I assume that that would be accretive to rattler right yeah.
Yeah, I mean, I think the key message is not using equity to fund it and we have the revolver balance.
It could easily tack onto our existing.
Existing bond, if we wanted to but or maybe do something in between but generally I think with the amount of liquidity, we have on our free cash flow we're generating.
How the equity looks expensive to us.
Raising equity is on.
The table for us to fall on that dropdown.
Okay and then the last question I promise.
You guys did a phenomenal job on the capital side and I mean is that just you've pushed projects out into 'twenty 2 or is that really just the capital that you need for Fang staying at this.
Fourth quarter kind of production that they talked about on their call.
Yes, I mean, I think it's a it's mostly the team cutting.
Cutting scope from the initial budget at the beginning of the year.
Things are still also coming in and they're a little bit but generally.
You know I think with.
We're saying not growing as much and rattler focusing on if any.
It's just a lot of the a.
A lot of little things that add up to a pretty big.
The difference in this years.
Capital planning I think generally if the dropdown.
Happens there is some onetime capital spend in 2022 to get ahead of water recycling and disposal in the new areas, but but long term I think getting back down to this.
To get to $50 million run rate it feels like a pretty good annual run rate if not lower for <unk>.
Rattler capital over over a long period upon.
Okay. Thank you so much and congratulations thank.
Thank you John.
As a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.
Okay.
Okay.
You have no questions at this time.
Thanks, again to everyone participating on today's call. If you have any questions. Please contact us using the contact information provided.
This concludes today's conference you may now disconnect.