Q2 2024 NGL Energy Partners LP Earnings Call

Greetings and welcome to the NGL Energy partners. Two 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. If anyone should require operator assistance during the call. Please press.

This started zero on your telephone keypad.

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.

Thank you.

Good afternoon, and thank you to everyone for joining us joining us on the call today, our comments today will focus on our strong second quarter results.

Look for the balance of this year and the steps we are taking to ensure we can address our debt maturities in the near future.

After the market closed today, we issued an earnings release published our Investor presentation and filed our 10-Q.

Today, we will include plans forecasts and estimates that are forward looking statements under the U S Securities law.

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

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

With that let's jump into our second quarter's results adjusted EBITDA for the second quarter was $176 2 million compared to $142 2 million for the second quarter of fiscal 'twenty three.

Warner was driven largely by water solutions continued strong performance water generated adjusted EBITDA of $140 4 million in process to four 4 million barrels per day for the quarter.

Through the first two quarters of the year and water solutions that generated $263 million of adjusted EBITDA and we are on pace for over 1 billion barrels of water disposal for the year.

With this strong start to the fiscal year, we are raising our full year guidance for water solutions for 185 million to 500 million plus.

We have seen quite a bit of the commodity price volatility this year and to mitigate mitigated against swings in oil prices, we have entered into crude oil costless collars.

Fiscal year to hedge our skim oil.

Moving to liquids logistics butane and propane are seasonal with the majority of their adjusted EBITDA coming in the back half of the fiscal year.

Our liquids logistics business is performing well with a strong start to the butane blending season.

We are entering the heating season, where propane will contribute to this segment's adjusted EBITDA in the third and fourth quarters and our refined products businesses are performing as we expected they would.

Crude logistics performance was slightly below our internal expectations, but we remain optimistic that the D. J basin will grow over the next 12 to 24 months benefiting the Grand Mesa pipeline.

We are reaffirming our full year consolidated adjusted EBITDA guidance of $645 million plus.

We are increasing asset sales of another 25 million to $100 million for the fiscal year.

Anything on the timing of these asset sales there could be EBITDA associated with these sales that would reduce our full year results were also hedging against a warm winter that could impact the results of our liquids logistics unit.

We are increasing our gross capital expenditures to $100 million versus previous guidance of $65 million due to the growth opportunities in the Delaware for water solutions segment.

The digital spend is for contracted volumes that generate attractive rates of return.

We should see a small impact to our adjusted EBITDA in the fourth quarter and a full year impact starting in fiscal 2025 from these projects. We are planning to fund this additional growth capital in the Haynesville asset sales I just mentioned.

Our strategy to reduce absolute debt and leverage continues ending the quarter with leverage of 414 times versus $6. One one times at the end of the second quarter of fiscal 2023.

Over the last 12 months, we have reduced absolute debt by approximately $680 million.

We retired the 23 notes at the beginning of the calendar year.

The 25 notes balance by $100 million in early April.

Eliminate eliminated the equivalent note after our marine asset disposition and reduce our ABL balance over this timeframe by $130 million, we are executing on our strategy to delever the balance sheet through EBITDA and free cash flow growth.

We did not make any open market purchases of up to 25 unsecured notes this quarter as the pricing for these notes has gotten tighter yielding seven 5% to 8% during the quarter due.

Due to the tightness in our 25 unsecured notes, we are focused on reducing our ABL balance, which is more expensive and reducing the balance gives us more optionality to address the capital structure in the near future.

As discussed on our last earnings call all free cash flow. This fiscal year will go straight to the balance sheet as we sit here today, we anticipate paying off the 25 unsecured notes by March 31 2024.

Our two most crop maturities are trading quite well as we continue to improve our financial position.

Our 2006 secured notes over the last week have traded in the mid to high 90 nines.

With our leverage projected to be sub four times by March 31, 2024, we should be well positioned to address our debt maturities as market windows to become available early into next calendar year.

Our liquidity remains strong as we enter peak inventory build season for butane and propane businesses.

As of September 30, we had $308 million of liquidity or the other.

6 million borrowed on the ABL.

We will see the working capital associated with the butane and propane businesses reduced the ABL balance as we exit the respective seasons.

Liquids logistics adjusted EBITDA was $17 1 million for the quarter versus $16 5 million for the second fiscal quarter of 2023.

Butane blending season, starting in our fiscal second quarter and is off to a strong start versus our internal expectations.

<unk> demand and margins have been strong.

In the prior year, we were negatively impacted by the lower locational differentials as a product we contracted to purchase at the beginning of the season competed against product purchased in a just kind of market.

Our refined products business continues to perform well as we have benefited from new supply and customer contracts and some of the regions we operate.

The higher margins, we experienced last year have normalize this year as supply issues were resolved and the supply demand balance has been restored.

As for Romania eating the heating season is just getting started the first and second fiscal quarter volumes were impacted by lower demand as the warmer than normal winter from last year left higher than normal inventories for retailers driving less demand during the summer months.

Nice Gary in the propane market, which has allowed us to lock in strong margins through our fixed price sales in the winter months, all of which set us up to have a profitable third and fourth quarter in our liquids business.

Crude logistics adjusted EBITDA was $30 7 million in the second quarter versus adjusted EBITDA of $32 9 million in the second quarter of fiscal 'twenty three.

During the quarter Grand Mesa volumes averaged 70000 barrels per day compared to 72000 barrels per day in the second fiscal quarter of the prior year.

The lower crude oil prices in the quarter also resulted in lower contracted rates with certain producers compared to the prior year when contracted rates were higher due to higher crude oil prices.

In addition, we realized lower contract differentials on certain sales contracts in the quarter compared to the same quarter in fiscal 'twenty three.

As I mentioned in my earlier comments, we remain constructive on the base and an anticipated improvement in volumes on Grand Mesa in the near future.

Water achieved adjusted EBITDA of $144 million, which equates to approximately 34% growth compared to the same quarter in fiscal 2023.

<unk> handled approximately two 4 million barrels per day of produced water volume in the quarter, a seven 7% increase from the prior year during the quarter. We had two items that positively impacted our quarterly results first we sold certain saltwater disposal assets and intangible assets in the Pinedale Anticline basin.

Portion of the transaction was allocated between the termination of <unk>.

And the sale of the assets based on the relative fair value.

Approximately $7 8 million of the total consideration was allocated to the termination of the water disposal contract, which was a favorable impact to adjusted EBITDA for the quarter second recall from the previous quarter, we stored skim oil volumes in the Eagle Ford Basin that didn't meet pipeline specs.

This issue was resolved in the second quarter and the oil is sold in the quarter and positively impacted adjusted EBITDA by approximately $4 million expense.

<unk> expenses for the quarter remained strong and industry, leading with 24 cents per barrel for the quarter. The team continues to find ways to manage costs and optimize the system in the face of inflationary pressures that I will turn the call over to Mike.

Thanks, Brad.

As you've heard our strategy has not changed achieve and beat our EBITDA guidance utilize free cash flow and non core asset sale proceeds to reduce debt and thereby lower leverage all good things come from less leverage.

With respect to our EBITDA guidance.

Water a year to date EBITDA $263 million, we only need to generate $2 37 in the second half to achieve the $500 million.

So we raised water guidance to 500, plus this is being conservative not an indication that we expect a decline.

Water volumes have started out at a lower slower in October so third quarter water EBITDA should be between first and second quarter actuals and an anticipated increase in the fourth quarter.

For all of NGL as Brad said, we're leaving full guidance at $645 million as we are anticipating more asset sales prior to $3 31, 24, which will reduce EBITDA for the remaining months in the fiscal year that we do not own the assets free cash flow should not be impacted as reduced EBITDA.

Would be offset by lower interest.

Looking at our long term indebtedness, we have been well served in a raising or rising interest rate market with our secured and unsecured debt paying a fixed rate of six <unk> to seven 5% depending upon the trough.

I had mentioned within our only floating rate debt is on the ABL and approximately 10%. So it is prudent to repay that first and then attack the 2025.

Regarding the dividend Arrearages, we do not expect to pay them, nor reinstate the dividend in this fiscal year.

With that let's open the line for questions.

Thank you the floor is now open for questions.

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And there are no questions in queue at this time.

Alright, well, we will see you next quarter. Thank you very much.

I do apologize actually speakers I did have a couple of.

A couple of participants just joined the queue.

So we have other lacey can only they can only have kept their question there late only or ask a question.

Thank you so much.

Certainly I. Appreciate your first question is coming from Jason Mandel from RBC capital markets. Jason. Your line is live. Please go ahead.

Hi, Thanks for taking the question. My question was going to be if you can break out of a sense for the improvement in water EBITDA over the next couple of quarters between volume and margin, but since I only have half. The question can you talk about margins.

[laughter].

You are being very gracious to will answer to all that.

And Doug if you're on the mind.

The question you may have to repeat it.

Yeah, Jason can you repeat the question.

Yeah can you give us a little bit of detail on what you see for the progress of margins in the water business over the coming quarters. Thank you.

So if you're trying to do the math on the <unk>.

The second quarter, while our average volume state.

Closely flat to the prior quarter.

Our margins were were very strong compared to the first quarter. So that's where we gleaned a large portion of our.

Of our gain in second quarter.

Part of that has to do with Opex coming down we're continuing to trend down on Opex and.

We're really seeing the increased fees.

Based on demand happening, especially in the Delaware.

So that's all a reflection of that is that expansion of the margin per barrel.

So as Mike mentioned.

We expect that margin margin to continue while we may have a slower Q3, just based on timing of completions activity.

We expect the margin to remain close to the same and then in Q4 as we expect a lot more completions to come along.

We expect to have a very strong Q4, and and and have at least the same amount of margin per barrel, we would expect that in.

In Q4, as we had in the Q2.

Yeah.

Thank you very much appreciate it.

Okay.

Thank you and there are no further questions in queue at this time.

And at this time I would now like to close the call and thank everybody for their participation.

Todays call has ended thank you once again for your participation and have a wonderful day.

Thank you.