Q2 2021 Oasis Midstream Partners LP Earnings Call
Morning, and welcome.
<unk> excuse me <unk> midstream second quarter conference call.
All participants will be in listen only mode.
Any assistance please signal conference specialist by pressing the star key followed by zero. After his presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
Now I'd like to start on the conference over to Mr. Richard Robuck see Oh. Please go ahead.
Thanks, Nick Good morning, everyone. This is Richard as Nick mentioned today, we're reporting our second quarter 2021 financial and operational results. We're delighted to have you on our call I'm joined today by Taylor Reid and Michael Lou as well as other members of the team. Please be advised that our remarks on both waste this petroleum and Oasis midstream partners.
Including the answers to your questions include statements that we believe to be forward looking statements within the meaning of the private Securities Litigation Reform Act. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different.
And those currently disclosed our earnings release and conference call. Those risks include among other matters that we described on our earnings release as well as the filings with the Securities and Exchange Commission, including our annual report on form 10-K, and our quarterly reports on form 10-Q, we disclaim any obligation to update these forward looking statements. During this conference call we.
We'll also make reference to certain non-GAAP financial measures and reconciliations to the applicable GAAP measures can be found in our earnings release and on our website.
Ill also reference our current Investor presentation, which you can find on our website that I'll turn the call over to Taylor.
Good morning, everyone and thanks for joining our call.
Oh on Pea delivered another great quarter as the team has done an amazing job controlling costs and maximizing operational reliability, which supports strong financial performance.
Additionally, the business development team continues with new third party contracts, which support our long term outlook.
Accordingly on P safety record has been great year to date, and we applaud the team for all their hard work and progress here.
I'd like to start today's call by highlighting a handful of key center.
First on <unk> second quarter performance exceeded expectation on volumes and cost control, leading to EBITDA and coverage outperformance.
Second the team has secured multiple third party contracts across the Bakken and Delaware.
In the Delaware or M. P. Recently expanded its third party business, which includes building a new pipeline connection to Wink. This was a major milestone for olympias. It connects our infrastructure to a key hub in the Delaware Basin, which greatly expands our third party opportunity set.
As you've likely noticed rig and permitting activity have increased on both the Bakken and Delaware.
Much of this expected activity is around 1 piece key infrastructure and we continue to work a robust pipeline of new opportunities in both basins.
Third party business accounted for about 17% of our revenue on the second quarter trading 100% of the Delaware revenues third party to account for Oasis divestiture.
Third we declared a cash distribution of <unk> 56 per unit in the second quarter, representing a 1 cent increase from first quarter levels.
We continue to have confidence in our new opportunities.
And business as we move ahead, we'll discuss those operating is a bit more on this call.
Fourth our spots or Oasis petroleum expects its Williston basin acquisition to close late in the third quarter.
As we highlighted last call. This strategic move provides additional value to O M P.
<unk> has indicated that post integration and expect similar or higher volume and RMP dedicated areas.
We have already seen the pivot as evidenced by our capturing the city of Williston acreage dedication from Oasis the.
The dedication includes crude oil natural gas and produce water services.
We entered a case study on their wages and on P. Investor presentations that highlight the strength of the city of Williston asset.
The upstream economics are fantastic, allowing Owen P to invest incremental capital on attractive build multiples.
Volume is under each service surfaces offering will flow as soon as late 2022.
Oasis is becoming an even stronger anchor tenant with more size and scale and a deeper inventory along with its pure leading financial position, allowing for a steady resilient development program.
We also have a right of first refusal on the painted woods project area, which is expected to be developed right. After city of Williston and is 1 of Oasis core operating areas paint.
Painted woods is also part of the case study in the Investor presentations.
Finally, both the Oasis recent strategic moves in 1 P success in capturing new business translate into differential value creation for our unit holders our outlook coupled with our strong balance sheet have us excited about the future of O M P.
I'll now turn the call over to Michael to get into a little more operational detail.
Thanks, Taylor Oh on P delivered another remarkable quarter with both volume and EBITDA being cash.
Capture rates remain at very high levels as LNP system experienced little downtime and allowed our sponsor to maintain its pure leading performance in gas capture as well as oil and water captured on pipeline.
Wild basin gas capture was about 99% in the second quarter net.
Natural gas related business is the primary driver of Rmp's financials accounting for over 60% of our fee based revenue.
Our sponsor announced it will publish its first sustainability report in August which among other things outlines its strong gas flaring performance as well as minimizing the number of trucks needed to move its oil and water volumes <unk> is proud to play a critical role in ensuring a weighted meets its objectives on this front.
Quarter over quarter volumes were generally flat or declined slightly across most commodity streams, reflecting limited completion activity from our sponsor and others, which was expected however, LNP exceeded expectations versus guidance on aggregate gas oil and water volumes as.
As we move through the second half of 2021 volumes are expected to grow in the third quarter before declining in the fourth quarter, reflecting a planned turnaround at the wild basin gas complex.
This turnaround is expected to last just over a week.
We're taking the opportunity to accelerate maintenance into the fourth quarter of 2021 to ensure strong operating reliability in 2022 and beyond given the anticipated downtime related to accelerated maintenance our full year EBITDA range was adjusted to $218 million to $224 million.
Excluding the turnaround our new guidance range would have exceeded our original guidance midpoint by roughly $1 million.
Third quarter EBITDA is expected to range between 56 and $59 million with fourth quarter EBITDA is expected to decrease by $6 million, reflecting the turnaround.
Coverage for the fourth quarter is expected to be about 1.2 times as maintenance capex increases for the turnaround.
Given the excitement around anticipated volumes from south nothing in the recent city of Williston dedication along with Oasis as development program focused on <unk> asset base, it's worth spending some time on our preliminary outlook for the next couple of years.
The volume trajectory from the from the fourth quarter into the first quarter of 2022 suggests flat to slightly down EBITDA versus the fourth quarter of 2021 and.
And similar coverage levels.
First quarter of 'twenty, 2 should be the low point for 2022 vol.
Volumes and EBITDA thereafter are expected to accelerate sharply in the second quarter and beyond and the South net and project comes on line the.
The fourth quarter of 2022 should be the highest of the year.
On average we're currently expecting 2022 EBITDA to be up high single digits.
On versus the full year of 2021.
That outlook is pro forma for the first quarter simplification.
2023, EBITDA has the potential to increase mid teens versus 2022 based on Oasis as current plan and assuming <unk> received the acreage dedication for painted woods, where we captured a roofer on this area during the simplification process.
Additional third party business would represent upside to our plan.
On the capital side second quarter spending of $13.2 million was in line with our guidance concurrent with the new city of Williston acreage dedication and additional third party business, we expect spending will increase to $73 million to $78 million in 2021, and the LNP begin construction on key infrastructure.
2022 capital spending is expected to increase versus 2021 levels as the LNP invest in critical infrastructure to support that strong EBITDA growth.
With that I'll hand, the call over to Richard.
Thanks, Michael.
<unk> financial position remains compelling and our outlook is differential as you can see on slide 12 of our investor deck on Pes EBITDA has grown from $43 million when we IPO Ed in 2017 to an expected $218 million to $224 million in 2021 as Michael discussed. This is set to increase further income.
<unk> years, as we receive additional education day skewed acreage dedications from our sponsor and growth third party business as well.
With our press release, we announced that <unk>, increasing our distribution 1 penny $2.56 per unit.
While still delivering stock strong coverage, our operating and financial projections have improved significantly from where we were a year ago. We will continue to make distribution decisions quarter by quarter based on recent performance and the go forward outlook Big part of the decision around the distribution is our leverage targets, we seek to maintain prudent distribution strategy with long term leverage within.
Our target of 275 times to 3 on a quarter times, Michael outlined our EBITDA trajectory earlier, which will translate into leverage the beginning half of 2022 at slightly above the high end of our long term target leverage range. We're comfortable with this tick up since leverage should quickly fall into the middle of our range or about 3 times and.
In the fourth quarter of 2022.
As of June 30, <unk> had $213 million drawn on its $450 million revolver, along with $450 million on unsecured bonds and $9.7 million of cash leverage based on the second quarter 2021 annualized EBITDA was approximately 2.9 times and closing <unk> executed well during the quarter.
And I'd like to congratulate the team for keeping margins high which supported our outperformance on P is in a position of strength as our go forward outlook is impressive which should drive attractive returns and cash back to our unit holders for years to come I'll now hand, the call over to Nick to open up the line for questions.
I'll begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
We are using a speakerphone please pick up your handset before pressing the keys.
So withdraw your question. Please press Star then 2.
At this time, we'll pause momentarily to assemble the roster.
First question comes from is there any I guess Eddie of J P. Morgan. Please go ahead.
Good morning, guys I just wanted to ask about.
On the many guidance fluctuate 90 to 102020.
My understanding was.
Looking forward to on flattish production outlook on when you're doing beyond.
Yes.
But that is but you also know that you have you got any shang.
Second half of <unk>, so wanted to understand how that will translate to.
Williams upside into assets machine.
And also what kind of completions activity.
Banking in the second half, but that's what we'll get will change when you're doing it on.
Yeah sure that's a great question.
As you know Oasis is expecting to close on this acquisition a day.
The diamondback assets at the end of the third quarter that asset, we're not putting rigs on in the near term and so naturally that means it's going to be declining over time, so oasis will be keeping volumes flat as you mentioned over time, which means that it's going to be putting its rig activity and completion activity on other assets those other assets.
Specifically, the OMB assets, so on an overall basis those would be necessarily growing.
As it related to kind of the overall profile for Oasis, So let's say, yes, that's a.
Great clarifying question that which was why we were so excited when Oasis announced that acquisition and then directed more capital towards the LNP asset base. The other thing that's important to note.
It's kind of 2 things 1 is that our our forecast is conservative as it relates to third party volumes, but the flip side as those by putting in that incremental capital into both that southwest area as well as the city of Williston and painted woods area. There is potential for third party upside to our numbers for that which is extreme.
Really highly capital efficient.
Capital to put into the ground.
Got it.
Just 1 picking up on the last comment you made debt.
The guidance assumptions baked in for 2020 to $1.90 day is that primarily whereas sales.
Making some kind of don't forget them.
No.
It sounds like.
Just wanted to get any more plus debt.
I mean, because we have as was noted earlier.
Yes around 70% of our revenue is from third parties.
On the way, we think about it as you know that's that's good contracted revenue and so we get volume forecast and expectations from our third party customers, which we roll into our into our forecast and then.
And then we have a very.
As mentioned early conservative wedge of incremental contracts, it's already really kind of like the final negotiation stage.
<unk> of the process so.
We've got a lot more behind <unk>.
Find that stage.
Stuff that we're talking term sheets and working on incremental prospects that is not included in our in our forecast. So that's where that's kind of on that kind of 3 buckets. If you will that we categorize our third party opportunity in what we're doing is really designed and the forecast that we get and then.
Stuff, that's super close to being nailed down.
And this is true maybe you think.
And again, 1 last on distribution. So you are kind of seeing.
Seeing the higher activity and then net capex creep some 2021'twenty 2.
On <unk> and to manage it wouldn't range like you said.
Kind of hitting the top end and $1.22.
1 just to understand like keeping the.
We can flag, let's say modestly increasing.
What level itself.
Our leverage is comfortable on where do you see keeping how how do you think about guiding growth distribution growth guidance given.
Given the current Capex outlook.
Yes, I think thats.
On the balancing act that we've been going through for.
A while now and you know our long term targets have been 275 times to 3 on a quarter.
<unk> per unique.
Compared to a lot on midstream businesses that it's in that kind of neighborhood. So it gives us a lot of flexibility gives us flexibility to in the near term spend a little bit of incremental capital and then the capital. We're spending is on volumes, we understand very well and so we have the ability to understand and predict where less.
<unk> is headed.
We see that leverage as you noted at the end of 2022 coming down around 3 times and so it actually as we March forward, we see it coming down even.
And even below those levels over time, given given what we know right now and not making any incremental third party upside.
And so the way we think about it as like we feel really good about our our plan and so we see the ability to increase distributions and we've been doing it on a very moderate pace. We just as you heard in our prepared remarks do not commit to you havent committed to it.
Our distribution growth because we just want to make sure that we stay.
Conservative on that front and remain flexibility kind of quarter at quarter end on quarter out just given some of the volatility that we've seen over the past couple of years.
We just want to make sure that we're in good shape.
I guess, the offset to that is that we feel really good about is oasis has a really strong hedge book and so their cash flows are locked in for the next couple of years and so the activity that they will be <unk>.
Delivering to OMB.
It gives us it gives us a lot of comfort in our numbers and the ability if we decide to to continue to increase the distribution.
Okay.
Okay. That's very helpful. Thanks, guys. That's it from me I have a good day.
Alright. Thanks.
Thank you next question is from call May of capital 1. Please go ahead.
Hey, good morning, everyone.
I appreciate the initial outlook for 2022 and 2023.
Okay.
Yeah for sure.
Did we lose you.
I think we've lost.
Hey, Nick are you still there.
We can't we can't hear you if you went on mute by chance.
Yes, I'm here.
Okay. Mr Me or are you still with us on the line.
Okay.
Yes.
Let's let him dial back in and go to the next question. If that works. Thank you next question will be from Neil Digman of truths. Please go ahead.
Good morning, all thanks for getting me in.
First question just on obviously you had a lot of nice beats on the quarter, but particularly on could you talk a bit about.
On the Capex, not only beat but the improved sort of capex guidance for the remainder of the year I know you talked a little bit on efficiencies, but.
Just talked about what you all are doing to continue to come in under cost Theyre very nicely I should add.
Or are you talking about.
On the Oasis side.
Yes, Sir yes, Sir Thanks, Mike Yeah, I think so.
Yes. So this is the LNP call, but on the Oasis side, we talked about on the last call that Youre exactly right on the Capex side, we've got we had strong beats.
You saw that in the second quarter really if you look at the full year, we brought capex down 7%.
On the E&P side, a lot of Thats around.
A combination of things, but think about that as kind of frac efficiency was 1 of the largest pieces of that the.
The second quarter was a little bit more kind of comb.
Combination of Frac efficiency timing in.
Interest in wells et cetera.
Kind of the overall kind of year look think about it as efficiency driven.
As kind of the cost of that 7%.
A lowering of the Capex side.
Got it got it thanks, Thanks for that Mike and then just a follow up on.
I know you've got a lot of options you sold down could you talk about the potential for.
Just deals out there or what what I know you've got a lot of options on O N P out there on the table.
Maybe just talk about is the M&A market improved or whats going on with that.
Yes.
<unk>.
And you heard on film on the.
The prior call you know there's a lot of.
Options from from an OEM perspective.
What I'd highlight are.
<unk> some of the.
The fantastic deals that have really been shareholder friendly to both sets of companies. It's really have been super thoughtful about all the deals of simplification is just a great example of.
Being able to take the.
The midstream assets at the parent.
Drop them at a very attractive price for OMB.
Really set up both companies going forward.
And played well with both sides.
On the equation, so you've seen us do that regularly.
Michael Richard both talked about some of the projects. We've just added in the queue, So dedications and south Nesson.
Also dedication and city of Williston again to 2 important projects for both companies.
Very helpful on accretive for both of them. So we will continue to.
To evaluate and look for those opportunities.
But I hope both companies going forward.
Yes, Sir it does seem like there's a lot of options look forward to a cash.
Great. Thanks, Neil.
Thank you and again if you have a question. Please press Star then 1.
Yeah.
Yes.
Okay.
We have no further questions at this time I will turn the call back over to Mr. Taylor Reid CEO. Please go ahead.
Thanks, Nick and closing second quarter results were solid in the go forward outlook is attractive supported by additional acreage dedications and a growing third party business <unk>.
<unk> is in a differential position to create value for unit holders and we look forward to continued execution.
Thanks, everybody for joining.
Thank you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.