Q1 2023 NGL Energy Partners LP Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the NGL Energy Partners LP first quarter 2023 earnings call.

At this time, all participants have been placed on a listen only mode.

After comments by Michael Campbell, and then the bridges, we will open the Q&A to sell side analysts after the presentation.

It is now my pleasure to turn over to your host Linda bridges, CFO NGL energy partners.

As yours.

Thanks.

Hi, and welcome to Ngls first quarter fiscal 2023 earnings call to start I would like to call your attention to our safe Harbor language, which can be found towards the end of the partnership's earnings earnings release, which was filed after the market closed. This afternoon. Today's remarks may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1090.

Five in accordance with the Act I would also like to direct your attention to the management's discussion and analysis section and the risk factors discussed in the partnerships annual report on Form 10-K for the year ended March 31, 2022 and in other SEC filings made by the partnership which are available on the website and on the SEC website.

These together with the Safe Harbor statement in the earnings release set forth important factors that could cause actual results to differ materially from those contained in any such forward looking statements.

Starting with the financial results for the quarter, our water solutions segment had a very strong quarter and reported record adjusted EBITDA of $105 million, an increase of 29% when compared to the first quarter of fiscal 2022, and an increase of more than 16% from the immediately preceding quarter.

These results were driven by record produced water volumes processed of approximately $2, one 5 million barrels per day, which was 12% higher than the immediately preceding quarter.

As well as higher than expected skim oil volumes sold operating expenses continue to decrease and totaled 25, a barrel as the business successfully controlled costs and a challenging supply chain and inflationary macro environment.

A reminder, three of our largest variable cost utility royalty and chemical expenses have not been and are not expected to be impacted by inflation due to contracted rates and favorable agreements with suppliers.

Due to the outperformance of the water solutions segment in the first quarter, we are increasing our full year guidance for this segment from over 400 million to over $410 million.

The liquids logistics segment reported adjusted EBITDA for the first quarter of $12 9 million compared to $5 6 million for the first quarter of fiscal 2022.

Results in this segment were primarily driven by strong margins on refined products and biodiesel volumes due to tighter supply in certain markets as well as favorable supply contracts and inventory positions.

Our propane and butane businesses performed as expected. However, the majority of their earnings will come later in the fiscal year when the blending and heating seasons are in full swing.

A reminder results in this segment will be driven by winter weather agricultural demand for propane gasoline demand refining activities and market disruption.

Crude logistics reported adjusted EBITDA for the quarter of $15 1 million as expected due to the volatility in the crude environment.

For the quarter were negatively impacted by approximately $20 million of net financial losses on derivatives that related to inventory gains realized in the fourth quarter of fiscal 'twenty, two as well as inventory gains that we expect to be realized in subsequent quarters.

Excluding these items the underlying business performed in line with expectations.

Nicole volumes on Grand Mesa were approximately 79000 barrels per day compared to 77000 barrels per day in the first quarter of last year and 74000 barrels per day for the preceding quarter.

And margin on crude oil barrel sold continued to benefit from increased differentials on certain sales contract as well as the realized the realization of the full price adder on certain contracts, whose rates increase with crude oil prices.

As adjusted for timing differences and physical and financial settlements of inventory sales. We continue to expect the underlying crude logistics business to perform relatively in line with fiscal 2022.

We continue to focus on the balance sheet and reported total liquidity of $286 million on June 30.

Additionally, we repurchased approximately $23 3 million of unsecured notes during the quarter and an additional $15 7 million subsequent to the quarter end.

As mentioned in our last earnings call. We continue to work on certain initiatives that should give us sufficient liquidity to fund elevated working capital requirements if needed as well as repay most if not all of our 2023 notes by the end of this fiscal year.

While we're still not prepared to discuss the specifics of these initiatives. We have made significant progress in bringing them to completion and hope to have updates soon with that I'll turn it over to Mike.

Thanks Linda.

Our focus continues to be on repaying the unsecured 2020, threes and reducing leverage below $4 75, so that we can pay the dividend <unk> reinstate the preferred dividends.

We are experiencing continued growth in our water disposal volumes, adding additional producers and expanding current relationships with.

With the addition of the second Poker Lake pipeline.

And another 24 inch pipeline, we can accommodate all the water volumes delivered by producers.

With respect to Capex. So these new pipelines resulted in 50% of our gross capex budget being incurred in this first quarter were $31 million.

We also accelerated our maintenance cap spend with about 40% of budget incurred.

Through June 30, we are prepared for increasing volumes the remainder of the fiscal year.

As Linda said, we are increasing the water solutions EBITDA guidance by $10 million.

For an amount in excess of $410 million.

If the current energy environment continues we could increase guidance further in the coming quarters.

I think with that we open it up for questions.

Certainly ladies and gentlemen for has now opened from sell side analysts for questions. If you have any.

Any questions or comments. Please press star one on your phone at this time.

We do ask that will posing a question. Please pick up your handset stipulation guest speakers to provide optimal sound quality.

Once again, if you have any questions or comments. Please press star one on your phone.

Please hold while we poll for questions.

Your first question is coming from James Spicer from TD Securities. Your line is live.

James Spicer your line is live.

Hi.

Thanks for thanks for taking the questions.

First question is.

Can you just help a little bit with the trajectory of water volumes during the year I understand that they are increasing but.

Is there.

An exit rate that you can provide in terms of where you think youre going to be by the end of the year for example.

Okay.

Yes, James So what we've guided to for the year is $2 2 million barrel for this year.

We haven't provided a specific growth trajectory.

First quarter volumes were right below that $2 $2 million. It came in at 215. So right now we're really just guiding to the $2 2 million I think we're hopeful we'll see growth through the remainder of the fiscal year, but we wanted to be a little conservative on the guidance.

Okay I understand.

Secondly, I'm wondering if you could just comment a little bit on the working capital and.

What you are expecting to see.

Next quarter, and then beyond that in terms of working capital to use.

Versus benefits.

Yes at this point I think youll see.

Working capital balances relatively.

Follow the relative trend that they've had really every other year, which is where we start building inventory of butane and propane during the late summer or fall.

I think typically we will be continuing to build through our third fiscal quarter, and then youll see a liquidation in our fourth fiscal quarter.

I do think Youll see.

Last year I think what we had seen was delayed build in inventory I think you'll see that build happen a little bit sooner. This year, but relatively speaking I think youll see that same pattern continue.

The one thing you might look at as commodity prices and the difference between last year's commodity prices in this year's commodity prices, specifically as it relates to butane and propane.

Okay. So with with your inventory build is it fair to assume that the majority of your free cash flow was going to come in.

Second half of the year then.

Yet.

Yes.

Okay. That's it for me Thanks, a lot.

Yes.

Thank you that concludes our Q&A session I will now hand, the conference back to Linda bridges for closing remarks. Please go ahead.

Alright, guys. Thank you again for joining the first quarter.

First quarter fiscal 'twenty three earnings call. We will look forward to updating you guys on our next quarter.

In the next few months.

Thanks.

Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time, everyone. Good day. Thank you for your participation.