Q1 2024 NGL Energy Partners LP Earnings Call

Greetings and welcome to the NGL Energy partners. One Q2 thousand 24 earnings call. At this time all participants are in a listen only mode and a question and answer session will follow the formal presentation.

Anyone should require operator assistance during the call. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Brad Cooper CFO of NGL Energy partners, Brad you may begin.

Good afternoon, and thank you to everyone for joining us on the call today. After the market closed today, we issued an earnings release Investor presentation and filed our 10-Q.

Comments today will include plans forecasts and estimates that are forward looking statements under the U S Securities law.

These comments are subject to assumptions risks and uncertainties that could cause actual results to differ from the forward looking statements.

Please take note of the cautionary language and risk factors provided in our SEC filings and earnings materials.

Let's get into the quarterly results. We have continued our momentum from fiscal 2023 into the first quarter of fiscal 2020 for our water solutions business is on pace for another record year of adjusted EBITDA.

And disposal volumes with $123 2 million and adjusted EBITDA for the quarter, we are reaffirming our full year consolidated adjusted EBITDA guidance of $645 million plus we.

We are getting more capital efficient by spending less growth capital. This year, and we are increasing our monetization guidance by 50% from $50 million to $75 million, thus, increasing our free cash flow for the year.

Our strategy to reduce absolute debt and leverage continues as we purchased $99 $3 million of the 2025 unsecured notes early in the quarter and reduce total leverage to four four times at the end of the first quarter.

As discussed on our last earnings call all the free cash flow. This fiscal year will go straight to the balance sheet and will allow us to pay off the 2025 unsecured notes no later than March 31 2024.

Our liquidity remains strong for this time of year recall earlier this year, we permanently extended our ABL commitments to $600 million through the life of the ABL as.

As of 630, we had approximately 286 million of liquidity at $180 million of borrowings on the ABL.

With our continued strong operational performance and the hard work of the entire company over the last two years, we have line of sight to leverage under four times at the end of fiscal 'twenty for this.

This leverage level will have us positioned for a global refinancing in the first half of calendar 2024.

As we've discussed before there is significant seasonality to our liquids logistics segment, especially at our butane and propane businesses.

Bill butane and propane inventories in the first and second fiscal quarters, which draws on working capital of the company. During these quarters butane blending season starts in our fiscal second quarter and as those inventories are drawn down working capital and margin associated with those sales come back to us in the third and fourth quarters.

The propane season is similar to the butane season with inventory draws typically starting in November .

Cooler weather starts in the upper Midwest and northeast regions of the United States.

Propane and butane have benefited this year from lower prices during their inventory builds with attractive spreads with the current contango in the market. Both are positioned for a strong back half of the fiscal year.

Sizable moves in propane and butane prices can shift earnings across our fiscal year.

I should decline over the course of the quarter earnings are shifted into future quarters due to how we hedge and lock in margins with fixed price contracts.

As mentioned on the last earnings call, Mike and I, both spoke to the seasonality of our EBITDA straight it's not as simple as taking the full year guide and dividing by four.

Internally, we always saw the first quarter of the year as the softest quarter of the year on a consolidated EBITA basis.

Crude logistics adjusted EBITDA was $23 8 million in the first quarter Grand Mesa volumes averaged 70000 barrels per day in the first quarter as well.

For the quarter were impacted by lower crude prices that resulted in lower contracted rates with certain producers. We also saw lower demand for heavier crude oil grades that resulted in lower volumes on the Grand Mesa pipeline.

As I mentioned earlier water solutions is on pace for another record year for adjusted EBITDA and disposal volumes water achieved strong adjusted EBITDA of $123 2 million, which equates to approximately 17% growth compared to the same quarter in fiscal 2023.

Also the water team handled approximately $2 $4 6 million barrels per day of produced water volume in the quarter, a 14% increase from the prior year.

Average disposal fee in the quarter was 64 cents, a 10% increase versus the prior year. This increase was driven by new contracts. We have signed over the past 12 months interruptible volumes, we have contracted as well as spot volumes that have been hit our system in the quarter.

Water team continues doing a great job holding operating expenses down averaging 25 per barrel in the quarter.

For the quarter Skim oil recoveries were in line with our historical averages across the base of the operator.

We did have approximately 53000 barrels of skim oil from the Eagle Ford in storage at the end of the quarter due to tighter pipeline specifications, which reduced the amount of skim oil and sold during the quarter.

Early in the second quarter, we solve the skim oil specification issue.

Both have the stored oil so far and expect to sell the remaining volumes in storage by the end of the second quarter and be back on track. So in skim oil production going forward in the Eagle Ford with the increase in disposal volumes and higher crude oil prices since June 30th we're expecting a strong quarter from our water solutions.

I will turn the call over to Mike.

Great. Thanks, Brad.

Good afternoon welcome as you.

No we do not provide quarterly adjusted EBITDA guidance in the summer months are typically the slower ones for NGL.

This is a typical first quarter with adjusted EBITDA approximately $11 million above the prior year's first quarter.

As we are only three months into the current fiscal year. It is too early to change guidance. So we are reaffirming our previous full year estimate EBIDTA guidance of $6 47 to 45 million pluses you've heard.

Note that our water solutions adjusted EBITDA. This quarter was 123, which times four quarters is $492 million. This exceeds our current water solutions guidance of $475 million for the full year in the second quarter similar better we will need to increase our water solutions.

Full year adjusted EBITDA guidance.

I think we have Doug white on Doug if you're there do you have any any color on water.

Sure Mike.

I think the important thing to point out is we hit a new.

Record peak day in the quarter in June .

Just shy of $2 8 million barrels.

So that shows our abilities number wanted to take effect.

Take the water and have that ready ready capacity, but also that we are showing the forecasted growth that we believe in.

Back half of the quarter.

Showed some pretty heavy recycling.

Which which is also now not necessarily negative the positive thing is when the producers are heavily recycling just means our new completions and.

A new robust volumes to come.

Great. Thanks.

Okay as I discussed in the last earnings call. Our accelerated debt reduction was made possible by the north noncore asset sales and reduced working capital requirements.

During the first quarter. This first quarter, we sold $22 million of such noncore asset. Another 25 million have been sold since the end of the quarter up to this.

Timing of this call for a total of $47 million.

So as Brad said, we're increasing our noncore asset sales from $50 million this year to $75 million.

And of course these additional sale proceeds will be deployed for further balance sheet improvement.

With respect to growth capital expenditures, we're reducing our guidance from 75 million to 65 million of savings of $10 million. This.

This takes our total capex, both growth and maintenance for the.

Full year from 125 million down to 115.

This reduction in growth capital will not impact any of our water disposal volumes.

So finally to sum it up we are on track to achieve our adjusted EBITDA guidance and we are generating an additional $35 million of free cash flow for further debt reduction.

We continue to be focused on increasing adjusted EBITDA, reducing indebtedness and deleveraging further.

Our goal remains repaying the 'twenty two 'twenty five unsecured notes and refinancing the 26 secured bonds.

As such we do not anticipate paying any preferred dividend arrearages in the current fiscal year.

That said I think we're.

Broaching the time, when we will regain a measure of financial flexibility.

Well I think with that we open up questions.

Thank you.

The floor is now open for questions. If you would like to join the queue to ask a question at this time. Please press star one on your telephone keypad to join the queue. We do ask if listening on speaker phone.

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These hold them, all but while we poll for questions.

And our first question today is coming from Sony Elsa Doll from Seaport Global.

Phil Your line is live please go ahead.

Yeah, Hi, good afternoon everybody.

So I just wanted to go on just kind of a little bit of the trend in Nevada business.

Especially the sequential trends so I believe the volumes of water volumes were essentially flat versus the previous quarter.

But do you have oh.

But the margins were a little bit impacted.

Could you talk a little bit about you know what was going on in that regard I think we have a hard you know commentary from some of that mix.

Midstream players about challenges in pardon me in.

Could you address that too.

Doug do you want to take that.

Yes Sunil.

One the difference between the Q4 and Q1.

Correct, we were very close to this.

The almost exact volumes in those two different quarters.

As you could see that the adjusted EBITDA was was very different. The main driver is that we had $12 million of M. D. C deficiency payments coming in in Q4 of which we did not have those in Q.

Q1, we had a smaller amount in Q1 and that's typical for us for a physical year end.

But if you see the the other metrics within the business and we felt that the Q1 was was an improvement over Q2, I'm, sorry, I'm sorry over Q4.

But the difference with other the M D C volumes, making the EBITDA was different.

Well, Doug what about the volumes what do you.

Seeing.

We all read I think there's been a rig reductions in the U S I'm not sure much in the Permian, but.

What kind of what are you seeing activity wise, what do you expect to your back half of this quarter in the next couple of quarters.

Yeah, where we have forecasted for this second quarter to be our.

Highest volumetric quarter for the fiscal year and there is a lot of recycling going on currently with produced water. We've seen swings of three to 400000 barrels a day I'm in the Delaware the back half of Q1 and early Q2 here.

We're starting to see those volumes swing back with completions coming online and we expect September actually to be are our biggest month of the entire fiscal years. So you know we are that the recycling and the lower volumes or the investment in the upcoming completions, but.

But we are still very much on track with our forecast for the year that has not changed.

Okay. Thanks for that and then in the liquids logistics segment I think you.

You mentioned about you know your hedges, but they've got today, you know propane and butane.

And I was wondering if you could quantify that a little bit and comes off you know they are done.

Contango stance right now or what kind of contango as you have locked in versus previous years.

Why do we start with the contango. So we have the main storage at our Conway.

We have a locked in I think there.

Our margins around 11 cents.

A gallon.

Which is we're very pleased with its more than the storage cost for that same storage. So it's gonna be a net positive.

Did you ever think Brad on the.

I think that's.

And obviously the market right now.

It's very frustrating because if you're in a market where you you've purchased at X price and the price falls you.

You know for the next several months.

We are actually.

And selling at a loss.

And then we ended up gaining that back in the second half of the year.

We've referred to it as way cog.

Which I hate that word but.

It's just a timing difference of when we get the profits.

Okay. Thanks for that.

Thank you.

Once again as a reminder, you May press star one on your telephone keypad at this time to enter the queue. Once again that'll be star one on your telephone keypad at this time, if you wish to enter the queue to ask the question.

Our next question today is coming from Tarek Hamid from JP Morgan Eric Your line is life. Please go ahead.

Hi, This is never on for Tarek I wanted to ask a little bit more about the timing to begin paying the press and whether the focus is on redeeming the proper just paying the dividend to start.

Yeah, I think as we this is Mike.

We're looking at each other.

You know what we're hyper focused on the refi, obviously and I think that's what we're laser focused.

Executing operationally here the next two to three quarters and positioning the partnership for that refi I think post refi that that will be oh.

Probably the decision and something we will continue to contemplate and kick around.

My guess is it's probably arrearages.

First I tried to get caught up on those but I.

I think refi person, that's where we are hyper focused.

I just wanted to clarify we are not allowed to go into the open market and buy.

The press.

We know we have the b's and c's of trade, but the piece or with some.

Private equity investors.

So it's difficult to go out and buy those you would have to make a.

And are offered to all of the B CS and DS So it would be difficult to buy back of the press.

Gotcha and second wanted to get your thoughts around potential consolidation in the water industry in the Delaware Basin.

Yeah.

Well you know we have a lot of silence around here I guess that means these are good questions.

Uh huh.

Yeah, I think it makes some sense.

Uh huh.

We're not in a position where we can do that with a.

Unit price at $4.

So I think that's it.

Again, it makes it's there's a lot of logic to it but I don't know that it happens right away.

Got you makes sense. Thank you.

Okay.

Thank you.

And there are no further questions in queue at this time I would now like to turn the floor back to Brad Cooper for closing comments.

Thank you guys for joining us today, it's the first quarter were happy with the progress. We've made again continue to be laser focused on our refinance.

And we'll talk to you guys here in a few more months. Thank you.

Yeah.

Thank you. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.