Q3 2024 NGL Energy Partners LP Earnings Call

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Operator: Please continue to hold on. Your conference will begin momentarily. Please continue to hold on. Your conference will begin shortly. Welcome to the NGL Energy Partners 3Q24 earnings call. At this time, all participants are in a listen-only mode.

[music].

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone to Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Brad Cooper: Good afternoon, and thank you to everyone for joining us on the call today. Our 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 those forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

Brad Cooper: Before we get into the third quarter's financial results, I wanted to take some time to discuss what we've accomplished this quarter. First, I want to thank all the NGO employees for their dedication and extra efforts over the last few months. What we have accomplished over the last few months is astonishing, and we should be proud of what we have achieved. We have been able to execute on our long-term plan faster than we anticipated. Operationally, we recently held an open season on the Grand Mesa Pipeline. On January 5th, we closed the open season on the Grand Mesa Pipeline and have a new five-year MBC with the same counterparty whose prior contract expired on December 31st. Outside of entering into a new five-year NBC agreement, this counterparty will also be the shipper on the pipeline, freeing up $18 to $20 million of working capital.

Greetings and welcome to the NGL Energy partners three Q24 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please.

Star Zero on your telephone keypad.

Please note this conference is being recorded.

I will now turn the conference over to your host Bradley Cooper CFO you may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans forecasts and estimates that are forward looking statements under the U S Securities law.

Brad Cooper: This is a permanent release of working capital. As we continue to negotiate new contracts and pre-contract on the pipeline, we should continue to see further reductions in working capital. These reductions in working capital require us to hedge fewer barrels, thus reducing earnings volatility and turning crude logistics into a more rateable, long-term, fee-based type of business with more MVCs. A few weeks ago, we issued a press release on the expansion of the LEX-produced water pipeline system into Andrews County. This expansion of the Lee County Express Pipeline System takes the existing capacity of 140,000 barrels of water per day up to 340,000 barrels per day in 2024. The addition of a second large diameter pipeline, new disposal wells, and new facilities will greatly expand the capabilities of NGL's existing produced water super system and create a significantly larger outlet for Delaware Basin produced water. The construction of the 27-mile, 30-inch produced water pipeline will transport water to areas outside the core of the basin, thereby further diversifying NGL's geographic location for its disposal operations.

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 presentation materials and our other public disclosure materials.

Before we get into the third quarter's financial results I wanted to take some time to discuss what we've accomplished this quarter.

First I want to thank all the NGL employees for their dedication and extra efforts over the last few months, what we have accomplished over the last few months is astonishing and we should be proud of what we've achieved.

We have been able to execute on our long term plan faster than we anticipated.

Operationally, we recently held an open season on the Grand Mesa pipeline.

On January 5th we closed the open season on the Grand Mesa pipeline and have a new five year NBC with the same counterparty who's prior contract expired on December 31.

Outside of entering into a new five year NBC agreement. This counterparty will also be the shipper on the pipeline freeing up 18% to $20 million of working capital. This is a permanent release of working capital.

As we continue to negotiate new contracts re contract on the pipeline, we should continue to see further reductions in working capital.

Reductions in working capital require us to hedge fewer barrels thus reduced reducing earnings volatility.

<unk> crude logistics into a more ratable long term fee based type of business with more empty seats.

A few weeks ago, we issued a press release on the expansion of the Lex produced water pipeline system into Andrews County.

Brad Cooper: The LEX II expansion is fully underwritten by a recently executed minimum volume commitment contract that includes an acreage dedication extension with an investment grade oil and gas producer. This is a strong example of the types of transactions we are able to execute upon with our continued demonstration of being the most reliable and dependable water disposal company in the lower 48. Financially, on February 2nd, we closed on the refinancing of our debt maturity. With this $2.9 billion refinancing, we extended the weighted average maturity of our debt by approximately three years while rebalancing the corporate maturity stack towards prepayable debt, providing us the optionality to further accelerate our deleveraging plan. The new term loan also provides additional exposure to floating interest rates.

Expansion of the Lea County Express pipeline system takes the existing capacity of 140000 barrels of water per day up to 340000 barrels per day in 2024.

The addition of a second large diameter pipeline, new disposal wells and new facilities will greatly expand the capabilities of Ngls existing produced water Super system and create a significantly larger outlet for Delaware basin produced water.

The construction of the 27 mile 30 inch produced water pipeline will transport water to areas outside the core of the basin, thereby thereby further diversifying NGL geographic location on its disposal operations.

The Lex two expansion is fully underwritten by a recently executed and minimum volume commitment contract that includes an acreage dedication extension with an investment grade oil and gas producer.

This is a strong example of the types of transactions, we're able to execute upon with our continued demonstration of being the most reliable and dependable water disposal company in the lower 48.

Brad Cooper: With projected rate cuts on the horizon, we should be able to capture lower interest expense in the future. The combined three tranches were the largest midstream sector financing efforts in 2022 and the most significant capital raiser in NGL's history. We have been very clear with our strategy over the last few quarters.

Financially on February 2nd we closed on the refinancing of our debt maturities.

With this $2 9 billion refinancing we extended the weighted average maturity of our debt by approximately three years, while rebalancing the corporate mature maturity stack towards pre payable debt, providing us the optionality to further accelerate our deleveraging plans.

Brad Cooper: Our plan was to address the debt maturities in the first half of calendar 2024, and we've been able to execute this refinancing months earlier than anticipated. With high-yield energy spreads trading the tightest they have been over the last two years, we decided to accelerate this refinancing while simultaneously amending and extending the ADL. In connection with this transaction, all three rating agencies issued new ratings, with S&P and Moody's both raising the corporate credit rating one notch to single B. Fitch initiated coverage on the company as well and issued a corporate credit rating of single B and double B minus on the secured notes and permalink.

The new term loan also provides additional exposure to floating interest rates with projected rate cuts on the horizon, we should be able to capture lower interest expense in the future.

The combined three tranches were the largest midstream sector financing efforts in 2022, and the most significant capital raise effort in NGL history.

We have been very clear with our strategy over the last few quarters. Our plan was to address the debt maturities in the first half of calendar 2024, and we've been able to execute this refinancing months earlier than anticipated.

With high yield energy spreads trading the tightest they had been over the last two years, we decided to accelerate this refinancing while simultaneously amending and extending the ABL.

In connection with this transaction all three rating agencies issued new ratings with S&P and Moody's both raising the corporate credit rating one notch to single B.

Fitch initiated coverage on the company as well as you would a corporate credit rating of single B double B minus on the secured notes and terminal.

Brad Cooper: The ABL has been extended five years to 2029, the commitment level stayed the same with 600 million dollars of commitments from the bank group, while at the same time getting relief within the documents across a few key covenants that provide us with more flexibility. The new debt consists of $2.2 billion of senior secured notes with $900 million of 5-year non-call 2 notes at 8 and 1 8th interest due 2029 and $1.3 billion of 8-year non-call 3 notes at 8 and 3 8ths due 2032. In addition to the secured notes, we entered into a seven-year, $700 million term loan facility.

A b L. A and extended five years to 2029 the commitment level stayed the same with $600 million of commitments from the bank group, while at the same time getting relief within the documents across a few key covenants to provide us more flexibility.

The new debt consists of $2 2 billion of senior secured notes with $900 million of five year non call two notes at eight and one eighth interest due 2029.

And $1 3 billion of eight year non call three notes at eight and three eights due 2032.

In addition of the secured notes we entered into a seven year $700 million term loan facility.

Brad Cooper: The term loan facility, this floating rate debt, and as I mentioned earlier, we went into the refinancing wanting a mix of fixed and floating rate debt. The term loan also gives us the ability to reprice the facility as we continue to execute on our operational plan and as we strengthen the balance sheet along the way. The net proceeds from the transactions are being used to fund the redemption of the 25 unsecured notes, the 26 unsecured notes, and the 26 senior secured notes, including any applicable premiums and accrued and unpaid interest. The funds will also be used to pay fees and expenses in connection with the transaction and to repay borrowings under the ABL.

The term loan facility this floating rate debt and as I mentioned earlier, we went into the refinancing wanting a mixing a mix of fixed and floating rate debt.

The term loan also gives us the ability to reprice the facility as we continue to execute on our operational plan.

As we strengthen the balance sheet along the way.

The net proceeds from the transactions are being used to fund the redemption of the 'twenty five unsecured notes 26 unsecured notes and the 2006 senior secured notes, including any applicable premiums and accrued and unpaid interest.

The funds will also be used to pay fees and expenses in connection with the transaction and to repay borrowings under the ABL.

This refinancing allows us to take the next step in addressing our capital structure.

Brad Cooper: This refinancing allows us to take the next step in addressing our capital structure. On Tuesday of this week, we announced the payment for 50% of the outstanding arrearages on the three classes of preferred security. Over the last few months, we've been using free cash flow to pay down our AVL and position ourselves to quickly address the debt after the refinance. We believe we are catching up on these arrearages quicker than anyone anticipated. The first 50% payment will be made to holders of record as of February 16th, with payments being made on February 27th. For the holders of the Class B Preferred Securities, they will receive $4.44 per unit, and each holder of the Class C's will receive approximately $4.07 per unit.

On Tuesday of this week, we announced the payment for 50% of the outstanding Arrearages all three classes of the preferred securities.

Over the last few months, we have been using free cash flow to pay down our ABL and position ourselves to quickly address the arrearages. After the refinancing. We believe we are catching up on these arrearages quicker than anyone anticipated.

The first 50% payment will be made to holders of record as of February 16 with payments being made on February 27th.

<unk> of the classic procured preferred securities they will receive $4.44 per unit and each holder of the class CS will receive approximately $4.07 per unit.

Brad Cooper: In addition to the payments to the Class B and C holders, we are also making a $115 million payment to the holders of the Class D preferred. The first question we expect to receive in the Q&A session is when do we plan to make the second half payment and declare we are current on the preferred distribution? In the press release we issued after market today, we are raising the full-year guide on asset sales from $100 million to $150 million. The remaining asset sales should close by $331.

In addition to the payments of the class B and C. Holders. We are also making a $115 million payment to the holders of the class D preferreds.

The first question, we expect to receive in the Q&A session is when do we plan to make the second half payment and declare we're current on the preferred distributions.

In the press release, we issued after market today, we are raising the full year guide on asset sales from 100 million to $150 million. The remaining asset sales should close by $3 31.

Brad Cooper: With free cash flow, asset sales, and the release of working capital in the liquid segment, we will make the remaining 50% payment in the very near future. We will be thoughtful about the timing of this payment as we assess what the fiscal 2025 cash flow and capital budget could be as we kick off the budget process in late February. Over the last several quarters, we have positioned the partnership to take advantage of a market window to address the debt maturity. Our ability to execute quickly allows us the flexibility to take the next step of our long-term strategy, addressing the preferred arrearages. As we achieve these milestones, our long-term strategy will continue to evolve.

With free cash flow asset sales and the release of working capital in the liquids segment, we will make the remaining 50% payment in the very near future.

We will be thoughtful on the timing of this payment as we assess what the fiscal 'twenty 25 cash flow and capital budget could be as we kick off the budget process in late February.

Over the last several quarters, we have positioned the partnership to take advantage of any market window to address the debt maturities our ability to execute quickly allows us the flexibility to take the next step of our long term strategy addressing the preferred arrearages.

As we achieve these milestones our long term strategy will continue to evolve we are additional steps to complete but all of our stakeholders should feel comfortable with the progress we have made at our consistent messaging along the way.

Brad Cooper: We have additional steps to complete, but all of our stakeholders should feel comfortable with the progress we have made and our consistent messaging along the way. With that, let's get into the third quarter financial results. Water solutions adjusted EBITDA was $121.3 million in the third quarter versus $121.7 million in the prior third quarter. Water disposal volumes were 2.38 million barrels per day in the third quarter versus 2.43 million barrels per day in the prior third quarter.

With that let's get into the third quarter financial results.

Water solutions adjusted EBITDA was $121 3 million in the third quarter versus $121 7 million in the prior third quarter.

Water disposal volumes were $2 three 8 million barrels per day in the third quarter versus $2 four 3 million barrels per day in the prior quarter.

Brad Cooper: As Mike mentioned on the previous earnings call, we expected water disposal volumes to be down versus the fiscal second quarter. There are two main drivers that impacted our third quarter disposal volume. First, producers are keeping produced water on location for completion activity.

As Mike mentioned on the previous earnings call, we expected water disposal volumes would be down versus the fiscal second quarter. There are two main drivers that impacted our third quarter disposal volumes first producers are keeping produced water on location for completion activity. This activity will create lumpiness in our disposal volumes going forward the good.

Brad Cooper: This activity will create lumpiness in our disposal volumes going forward. The good news is NGL will receive these disposal volumes once all completion activity is completed at that location. NGL isn't losing any volumes; it's just a timing issue on when those volumes will be received.

News is NGL will receive these disposal volumes once all completion activity is completed at that location NGL isn't losing any volumes that just a timing issue on when those volumes will be received second we have a large M. D C with an investment grade integrated energy major.

Brad Cooper: Second, we have a large MVC with an investment grade integrated energy major. This producer pressured up its own water gathering system and was limited to the amount of water volumes they could get on our system. This producer is currently working on reducing pressures on their water gathering system. The volume impact for the third quarter was approximately 178,000 barrels per day for the quarter.

This producer pressured up its own water gathering system and it was limited to the amount of water volumes. They can get on our system.

This producer is currently working on reducing pressures on their water gathering system.

The volume impact for the third quarter was approximately 178000 barrels per day for the quarter.

It's important to remember that we get paid for these volumes in these deficiency volumes are not included in the physical disposal volumes we report on.

Brad Cooper: It's important to remember that we get paid for these volumes, and these deficiency volumes are not included in the physical disposal volumes we report. Also, this MVC has approximately nine years remaining. Water Solutions continues to maintain operating expenses at 25 cents per barrel, the best in the industry. This is primarily due to lower chemical expenses, lower generator rental expenses, and utilities expenses. These decreases were partially offset by higher repairs and maintenance expenses due to the timing of repairs, preventative maintenance, and tank cleaning.

Also this M. D. C is approximately nine years remaining.

Water solutions continues to maintain operating expenses at 25 cents per barrel best in the industry. This is primarily due to lower chemical expenses lower generator rental expenses and utilities expenses.

These decreases were partially offset by higher repairs and maintenance maintenance expense due to the timing of repairs preventative maintenance and tank cleaning.

Brad Cooper: Crude oil logistics adjusted EBITDA was $17 million in the third quarter versus $33.3 million in the prior third quarter. The adjusted EBITDA decrease was primarily due to lower crude sales margins as we received lower contracted rates with certain producers as WTI pricing went below $75 and lower contract differentials negatively impacted certain other sales contracts; volumes decreased due to lower production on acreage dedicated to the Grand Mesa Pipeline. Also, our adjusted EBITDA, when compared to the same quarter in the previous quarter, is slightly impacted by the sale of our marine assets on March 30, 2023. We remain constructive in the DJ basin and believe the results of the most recent open season on Grand Mesa demonstrate the importance to producers of having long-term capacity contracted on the pipeline. We will continue to work with the producers and the DJ and look forward to having additional contracting updates in the near future. Liquids Logistics EBITDA was $22.4 million in the third quarter versus $20.5 million in the prior third quarter.

Crude oil logistics adjusted EBITDA was upset with 17 million in the third quarter versus $33 3 million in the prior third quarter the.

The adjusted EBITDA decrease was primarily due to lower crude sales margins as we receive lower contracted rates with certain producers swg high pricing went below $75 and lower contract differentials negatively negatively impacted certain other sales contracts.

Volumes decreased due to lower production on acreage dedicated to the Grand Mesa pipeline.

Also our adjusted EBITDA when compared to the same quarter in the previous quarter is slightly impacted by the sale of our marine assets in March on March 13th of 2023.

We remain constructive on the D J basin and believe the results of the most recent open season on Grand Mesa demonstrate the important to producers of having long term capacity contracted on the pipeline.

We will continue to work with the producers in the D J and look forward to having additional contracting updates in the near future.

Liquids logistics EBITDA adjusted EBITDA was $22 4 million in the third quarter versus 25 nine in the prior third quarter.

Brad Cooper: This increase was due to higher margins and higher demand for butane blending. However, this was partially offset by lower propane margins and volumes due to warmer weather in the third quarter. Also, lower margins on refined products as supply issues seen in certain markets in the prior year have been alleviated and have tightened margins. Corporate and other adjusted EBITDA was a loss of $11.9 million in the third quarter versus income of $19.5 million in the prior third quarter.

This increase was due to higher margins and higher demand for butane blending.

This was partially offset by lower propane margins and volumes due to warmer weather in the third quarter.

Also lower margins are refined products is supply issues seen in certain markets in the prior year had been alleviated and have tightened margins.

Corporate and adjusted and other adjusted EBITDA was a loss of $11 9 million in the third quarter versus income of $19 5 million in the prior third quarter.

Mike Murray: I want to remind everyone that in the prior year's third quarter, it included other income of $29.5 million to settle a dispute associated with commercial activity. I would now like to turn the call over to Mike Primble, our CEO.

I want to remind everyone that in the prior year third quarter. It included other income of $29 $5 million to settle a dispute associated with commercial activities.

I would now like to turn the call over to Mike Trimble, Our CEO Mike <unk>.

Mike Murray: Thanks, Brad. As you have heard, in the last year, we have achieved significant milestones as we position NGL for success but, at the same time, continue to exceed expectations. First, as Brent described, we have reduced leverage on the balance sheet faster than expected due to the free cash flow and asset sales of Tractable. Second, this deleveraging allowed us to complete the refi of all of our indebtedness earlier than expected, reducing our refinancing risk, and providing financial flexibility.

Thanks, Brad.

As you've heard in the last year, we have achieved significant significant milestones as we position NGL for success and at the same time continue exceeding your expectations.

First is Brad described we have reduced leverage on the balance sheet faster than expected due to the free cash flow and asset sales at attractive multiples.

This deleveraging allowed us to complete the refi if Oliver indebtedness earlier than expected.

Reducing our refinancing risk providing financial flexibility.

Mike Murray: And third, we announced the payment of 50% of the preferred dividend arrearages sooner than expected. We are trying not to disappoint but rather to establish a reputation for beating expectations. Looking forward, we are focused on the following: payment of the remaining preferred distribution arrearages as soon as possible. Then reinstatement of the Class B, C, and D distribution as soon as possible. Third, continued deed leveraging through debt reduction and increased EBITDA balanced with addressing the Class D preferred. Debt reduction can begin six months after the recent refi as the new high-yield debt has non-call provisions of two to three years and the term loan incurs breakage fees if repaid within the next six months.

And third we announced the payment of 50% of the preferred dividend arrearages sooner than expected.

We are trying not to disappoint, but rather established a reputation for beating expectations.

Looking forward, we are focused on the following.

Payment of the remaining preferred distribution arrearages as soon as possible.

Then reinstatement of the class B C and D distribution as soon as possible.

Third continued deleveraging through debt reduction and increased EBITDA balanced with addressing the class D prefer.

Debt reduction can be begin six months after the recent refi.

A new high yield debt has non call provisions of two to three years and the term loan incurs breakage fees, if repaid within the next six months.

Bore improve our credit rating with the agencies debt reduction payment of the distribution Arrearages and increased EBITDA can accelerate this process.

Mike Murray: Four, improve our credit rating with the agencies, debt reduction, payment of the distribution rearages, and increase EBITDA and accelerate the acceleration process. 5. Emphasize internal growth opportunities that attract rates of return, underwritten and supported by MVCs, rather than limiting growth capital as we have done up until now. We will look for investments to expand our footprint and strengthen our competitive position that will also increase the quality, consistency, and amount of our adjusted EBITDA. One example of this is the recently announced expansion of the county express pipeline system. The growth in CapEx and adjusted EBITDA for this project will be included in our fiscal 2025 guidance. Another example of the outcome of the open season Brad spoke about.

I emphasize internal growth opportunities at attractive rates of return underwritten and supported by Mpc's, rather than limiting growth capital as we have up until now we will look for investments to expand our footprint strengthen our competitive position that will also increase the quality consistency.

And amount of our adjusted EBITDA. One example of this is the recently announced expansion of Lea County Express pipeline system.

The growth Capex and adjusted EBITDA for this project will be included in our fiscal 2025 guidance.

Another example is the outcome of the open season, Brad spoke about.

We are currently working on multiple new growth projects and contracts, which we will announce if successful.

Finally, we expect to grow adjusted EBITDA each year for the foreseeable future led by our Delaware water solutions business with.

With respect to our adjusted EBITDA, we are affirming the previous guidance of 500 million plus for water and 645 million for the partnership.

Mike Murray: We are currently working on multiple new growth projects and contracts, which we will announce if successful. Finally, we expect to grow adjusted EPA values each year for the foreseeable future, led by our Delaware Water Solutions business. With respect to our Adjusted EBITDA, we are affirming the previous guidance of $500 million plus for water and $645 million for the partnership. Our guidance for adjusted EBITDA and growth capex in FY25 will obviously be higher than the current fiscal year, but we will announce that at our year-end call. In closing, over the last few years, we have made tremendous progress in many areas, including increased efficiencies, cost reduction, asset sales, reduced leverage, and increasing EBITDA. Going forward, we will have fewer opportunities to capitalize on most of these areas.

Our guidance for adjusted EBITDA and growth Capex in fiscal year 'twenty five.

Obviously be higher than the current fiscal year, but we will announce that at our year end call.

Paul.

In closing over the last few years, we have made tremendous progress in many areas increased efficiencies cost reduction.

Asset sales reduced leverage and increase in EBITDA.

Going forward, we will have fewer opportunities to capitalize on most of these areas.

Our renewed focus will be on internal growth.

With Nbc's and hitting our numbers NGL was one of the best performing equities in the energy space in calendar 'twenty three we will do our utmost to repeat that performance. Thank you.

Questions.

Yeah.

Thank you.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Operator: So our renewed focus will be on internal growth with MVCs and hitting our numbers. NGL was one of the best performing equities in the energy space in calendar 23. We will do our utmost to repeat that performance. Thank you, and God bless.

You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

The first question comes from Paul Chambers with Barclays. Please proceed.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keyboard. An information tone will indicate your line is in the question queue; press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.

Yes, great. Thanks.

I'll surprise, you here and not ask about depressed.

Brown, you brought up a working capital release in crude logistics and obviously your March quarter historically.

You had the largest swings towards the positive working capital change.

I know there are a lot of factors involved including seasonal inventories, but any color a range you can kind of point us to for what the fourth quarter could could look like or what you're targeting for the full year.

Operator: One moment, please, while we poll for questions. The first question comes from Paul Chambers with Barclays. Please proceed. Yeah, great. Thanks. I'll surprise you here and not ask about the press.

Fourth quarter ABL balance.

No the work working cap sorry, working capital.

Paul Chambers: Brad, you brought up a working capital release in crude logistics, and obviously, your March quarter historically had the largest swings towards the positive working capital change. I know there are a lot of factors involved, including seasonal inventories, but, Any color or range you can kind of point us to for what the fourth quarter could look like or what you're targeting for the full year? fourth quarter ABL balance. Paul?

Change.

Working capital at any quarters, it was like $1 20.

And I think the previous year was like 60 million I know, it's a big swing for you every year.

Yeah, that's probably a decent ZIP code, it's a little bit challenging to think I'm looking thinking through the ABL balance because we've been using free cash flow to pay down the ABL to address the prep.

I would think we'd probably be.

$40 million to $50 million working capital number at $3 31, Paul.

Okay.

Right.

Great.

Brad Cooper: No, working capital, sorry, working capital. I think the last few quarters it was like 120. And I think the previous year was like $60 million. I know it's a big swing for you every year. Yeah, that's probably a decent zip code.

55, sorry.

Okay, Yeah, so fourth quarter working capital would be somewhere around you think in the 50 ish plus or minus range just what it.

Yeah, that's a good estimate.

Is there a margin.

Apologies can you hear me.

Yes, Yeah. Operator next question question Oh, absolutely.

Brad Cooper: It's a little bit challenging to think, I'm looking, thinking through the ABL balance because we've been using free cash flow to pay down the ABL to address the PREV. I would think we'd probably be a 40 to $50 million working capital number at 331, Paul. Okay. Great. 55.

Next we have Patrick Fitzgerald from Baird. Please proceed.

Hey, congrats on the refi.

What is if you wouldn't mind could you provide an update on the ABL balance.

You know as of today or recently.

Brad Cooper: Sorry. Yeah, so fourth-quarter working capital would be somewhere around, you think, in the 50-ish plus or minus range. Yeah, that's a good estimate. Apologies, can you hear me?

Yeah, it's zero today.

Okay.

So you're making.

The preferred payments.

I guess.

Operator: Operator, next question. Oh, absolutely. Next, we have Patrick Fitzgerald from Baird.

All with a free cash flow and asset sales.

Yes, I mean, we're using we'll be using a little bit of the ABL balance just because we've been using free cash flow in the third quarter to get the ABL down to zero. So back to the kind of the opening question about the ABL balance at 331 will represent a little bit of usage for the preferred otherwise its free cash flow.

Patrick John Fitzgerald: Please proceed. Hey, congrats on the ReFi. What is it? If you wouldn't mind, could you provide an update on the ABL balance, you know, as of today or recently? It's zero today.

Yeah.

Brad Cooper: Okay. So, you're making... The preferred payments, um, I guess, all with free cash flow and asset sales. Yeah, I mean, we're using we'll be using a little bit of the ABL balance just because we've been using free cash flow in the third quarter to get the ABL down to zero. So back to the kind of opening question about the ABL balance at 331. It will represent a little bit of usage for the preferred. Otherwise, it's free cash flow. Keep the moderator there.

Is the moderator there.

Apologies, having technical difficulties here.

The next question.

Your next question comes from.

Here.

Gregg Brody from Bank of America. Please proceed.

Hey, guys and congrats.

That's in all of the work you did on refi and getting the first slug of preferred.

Just I know, it's been a long road so congrats on all of that.

Brad Cooper: Apologies, I'm having technical difficulties here. On to the next question. Your next question comes from..., from Bank of America. Hey guys, and congrats on all the work you did on refi and getting the first slug of preferred addressed. I know it's been a long road, so congrats on all that. My question is more on the asset sales. Maybe give us a sense of what some of those might be and if that will lead to any revision to your guidance. Yeah, a good question.

Just my question is more just on the asset sales.

Can you maybe give us a sense of what some of those might be.

And.

If that will lead to some of any revision to your guidance once it's done.

Yeah. Good question, there, what's what's really left and I spoke to the working capital release, that's coming our way as a result of the new.

Brad Cooper: What's really left, and I spoke to the working capital release that's coming our way as a result of the new shipper on the Grand Mesa pipeline that just occurred during the open season. We've accounted for that $18 to $20 million of working capital release in our asset sale number because it's a permanent release of working capital. And there's a second transaction that is a land position that generates mid to high single-digit EBITDA that we're close to wrapping up. It would be a similar type and multiple from what we've been executing this year. And just as you talk about shifting to organic growth opportunities, you highlight the one that you announced last month. How significant do you think that could be?

The shipper on the Grand Mesa pipeline that just occurred through the open season, we've accounted for that $18 million to $20 million of working capital release at our asset sale number because it's a permanent release of working capital when Theres, a second transaction that.

As a land position that generates.

Mid to high single digit EBITDA that we're close to to wrapping up it would be a similar type.

Multiple from what we've been executing this year.

And just as you talk about shifting to organic growth opportunities you've highlighted the one that you announced.

The last month.

How significant do you think that could be.

Mike Murray: And is there, you sounded like you would try to pay off the rest of the preferred near-term. Is it possible that gets delayed as a result of organic growth opportunities or where you think you can do it all at the same time, or do you think you can do it all? Yeah, we can, you know, I mean, we're committed to getting caught up on the preferred arrearages. We've been very clear, I think, with the press release that went out Tuesday regarding the first payment. We wouldn't have committed to making a first payment if we didn't see a line of sight to having the second payment made. We do want to see the release of working capital come our way in the third quarter. The pre-cash flow we typically generate comes our way in the fiscal fourth quarter and then we are then in a position to make that payment. But the growth projects that Mike spoke to do not impede our ability to address those arrearages. That's it for me, guys.

And is there you sounded like you would try to pay off the rest of the preferred near term is it is it possible that gets delayed as a result of organic growth opportunities or where you think you can take.

You can do it all at the same time.

And do it all.

Yes, we can.

We're committed to getting caught up on the preferred arrearages, we've been very clear I think with the press release that went out Tuesday, and the first payment.

We wouldn't have committed to making our first payment if we didn't see line of sight to having the second payment.

Being made we do want to see the release of working capital come our way in the third quarter. The free cash flow, we typically generate come our way in the fiscal fourth quarter and then.

Be in a position to make a payment but the.

The growth projects that Mike spoke to does not impede our ability to.

To address those arrearages.

Alright Thats it from me guys. Thanks for the time and congrats again.

Brad Cooper: Thanks for the time. Gracias. Thank you. The next question comes from... Paul Chambers, with Barclays. Hey, guys, thanks for letting me back in. I think I got bumped there. Follow up question on oil skimming.

Thank you.

Yeah.

The next question comes from Paul.

Chambers.

With Barclays. Please proceed.

Hey, guys. Thanks for letting me back in I think they got a bump there.

Follow up question on kind of oil skimming in is because we look.

Brad Cooper: And as we look, you know, at fiscal 25 and the ramp-up of the new contract that's commencing in the second half, will the oil skimming daily volumes grow commensurate with that? Or maybe put another way, is it fair to assume that oil skim volumes will be higher in fiscal 25? Yeah, the relationship between skim and disposal volumes that we've had the last couple years should hold for fiscal 25. And then, I guess, Brad, one thing is the clarity on, you know, on the income statement: the water solutions cost of sales was a benefit. I know it's a small number, but can you add any clarity on why that is?

Fiscal 'twenty, five and the ramp up for new contracts.

Commencing in the second half.

Well the oil skimming daily volumes grow commensurate with that or or maybe put another way.

Is it fair to assume that oilskin volumes will be higher in fiscal 'twenty.

Yeah.

The relationship between skin and disposal volumes that we've had the last couple of years should hold for fiscal 'twenty five.

Okay.

Okay.

And then I guess, Brad one.

The clarity on you know on the income statement the water solutions cost of sales was the benefit and I know, it's a small number but can you add any clarity on why that is.

Okay.

Brad Cooper: The cost of sales that might be, we've got hedges. We've hedged the skim oil with costless collars. That could be rolling through that line item. Let us look at that real quick, and we can circle back with you, Paul, if that's not the answer. In those small positions, we had about 80 to 90% of our skim oil hedged with collars through the end of the fiscal year. Okay. Fair enough. Great. Thanks for that!

Is that cost of sales that might be we've got hedges with.

We've hedged the skim oil with Costless collars that could be rolling through that line item, let us look at that real quick and then we can circle back with you Paul if that's not okay not nowhere close the small position, we had about 80, 80% to 90% of our skim oil hedged with collars through.

At the end of the fiscal year.

Okay.

Okay.

Fair enough great. Thanks for that.

Operator: Okay, the next question comes from Ward Blum. From UBS, please proceed. Good afternoon.

Okay. The next question comes from Ward Blum.

From UBS. Please proceed.

Good afternoon, great accomplishment on the refi.

Operator: Great accomplishment on the refi. Sort of looking forward, you know, perhaps a quarter or so when you, you know, have the free cash flow and the asset sale proceeds to bring your preference current, how do you view the, you know, sort of the priorities between, um, getting rid of the preferred with a 12% coupon or starting to pay distributions to the company unit holders? I think we've got a bad connection, www.

Sort of looking forward perhaps.

A quarter or so when you.

You have the free cash flow and the asset sale proceeds to bring your preferreds current.

How do you view the.

Sort of that.

The priorities between.

Getting rid of the B preferred with a 12% coupon or starting to pay distributions to the unitholders.

I think we've got a bad connection.

No we the the issue on the DS is there is a maturity of those at June 30 of 2007.

Mike Murray: NGL.org Now we, the issue with the D's is that there is a maturity level for those at June 30 of, 27. So it's not perpetual. We just can't let it hang out there.

So it is not perpetual we just can't let it hang out there.

So we you know we do we're not fans of the cost of those funds either so I would say we have to do something in the next three and a half years.

Mike Murray: So we're not fans of the cost of those funds either. So that would say we have to do something in the next three-and-a-half years. I was referring to the B as in boy. Oh, the well-being of coupon. The bees being perpetual, they're not our first, not the first security in the preferred that we would go after.

I was referring to the B as in boy.

Oh.

Bob.

The bees being perpetual, but they're not our first no. It's not the first security that preferred that we would we would go after getting caught up on the B C and D. Arrearages allows us now to make a to start making redemption payments under the class fees to Mike's comments that those have the because of the obligation.

Brad Cooper: Getting caught up on the BC and D arrearages allows us now to start making redemption payments on the Class D's. To Mike's comment, that those have the obligation or the put right in the summer of 27, and we will go after the D's before we address the B's and the C's. Would that preclude you from making common distributions at that point when you were going after the, you know, pay down of the D?

The put right in the summer of 'twenty seven.

We will go after the diesel will readdress, the BS and CS.

Would that preclude you from making common distributions at that point when you were going after the.

Pay down of the day.

Mike Murray: Now, once we have paid the arrearages, we have, that's what we refer to as financial flexibility. We can reduce debt further, we can pay, you know, buy out the fees over time, and we could then do something with the comments. Thank you very much.

Now once we have paid the arrearages, we have as we refer to the financial flexibility. We can reduce that further we can pay buyout the DS overtime and we could then.

Is something with the cabinet.

Thank you very much.

Operator: Yep, thank you. Okay, the next question comes from Ned Baramov with Wales Fargo. Talk about how big the contract is with the one shipper that signed up for capacity, and then when are the remaining contracts on Grand Mesa rolling? Yeah, we've got, maybe a smaller contract that's rolling off towards the latter part of this calendar year, and the second contract of size, equivalent to one that just rolled off. That's another couple years on it. Okay, I got it.

Yep. Thank you.

Okay. The next question comes from Ned <unk> with Wells Fargo.

Can you talk about how big the contract is with the one shipper, which signed up for capacity and then.

When are the remaining contracts on Grand Mesa Rolling off.

Yeah, we've got maybe.

Maybe a smaller contract that's.

Rolling off towards the latter part of this calendar year.

Second contract of size.

Equivalent to one that just rolled off because of that a couple of years on it.

Okay got it and then maybe on the on the water system expansion project can you can you give us a sense for.

Operator: And then maybe on the water system expansion project, can you give us a sense for the CapEx dollars associated with the expansion. I know that you mentioned next year's growth CapEx is going to be higher than the current year, but just looking for additional color there. Yeah, at this time, we can't; it'll be part of our fiscal 25 budget, and I think, as Mike spoke to you, we'll roll that all out on the June year-end call. Understand? Thanks for your time.

The capex dollars associated with the expansion I know that you mentioned next year's growth Capex is going to be higher than the current year, but just just looking for additional color there.

Yeah at this time, we can it'll be part of our fiscal 'twenty five budget and I think as Mike spoke to will rollout all all that out on the June June year end call.

Understood. Thanks for the time.

Operator: Thank you. Okay, the next question comes from Ben Niedermeyer from MBW Capital. Your line is live. Yes, I'm just wondering, you know, with the desire to get a higher debt rating, what you're thinking on a debt to EBITDA aspirationally, where you want to see it. And I know you've got to counterbalance that with the fact that some of the debt you can't pay down right away, and it's more of an EBITDA gross thing, but nonetheless, where do you see EBITDA two So Ben, I think their agencies consider the rearages as indebtedness, and they also consider the Class D's as indebtedness.

Thank you.

Okay. The next question comes from Ben Niedermeyer.

From BW capital your line is live.

Yes, I'm, just wondering with the desire to get a higher debt rating you.

What youre thinking is on debt to EBITDA aspirational, where do you want to see it in <unk>.

And I know you've got a counterbalance that with the fact that.

Some of that debt you cant pay down right away and it's more of an EBITA growth thing, but nonetheless, where do you see EBITDA.

Two three years out.

So bill I think their agencies consider the arrearages as indebtedness and they also consider the class DS as indebtedness. So by you know we're not we're not looking at are just kind of your.

Mike Murray: So by, you know, we're not looking at our just kind of your Plain Vanilla Leverage; it's really all three of those. So we, by paying down the rearages and going after the D's, that will be reducing leverage from the agency's point of view. And what are you looking at in terms of goals?

Plain vanilla leverage it's really all three of those so we will by paying down the ridges and.

Going after the DS that we'll be reducing leverage from the agency's point of view.

And where what are you looking at in terms of goals.

Mike Murray: Are you looking for leverage to be? Three and a half, Dept. of EBITDA. Yeah, just plain vanilla without the rearages or the froth.

Are you looking for leverage to be brief.

Three and a half debt to EBITDA.

Yeah, just plain vanilla without the Arrearages are the frac.

Brad Cooper: We'd like to be, Brad, what do you think? Yeah, I think while we continue to address the prep, Class D specifically, I think we're in this three and a half times to four times the range. And then once the D's are taken care of, something's subbed at that level.

We'd like to be Bradley.

I think while we continue to address the crap I class D. Specifically I think we are in those three and three quarters to four times range and then once the these are taken care of something something sub that level I think we're probably three and a half as a nice long term goal for us to.

Brad Cooper: We're probably three and a half, so it's a nice long-term goal for us to... have post-class fees. Now, can I do a follow-on question on another topic? The former question on not being able to disclose the cost of the new pipe that I'm interested in knowing if you can disclose the length of those MVCs, and I'm assuming the return on invested capital is going to be much higher than the company norm because you've got it on an existing right-of-way that you're building another pipe right next to another one, and still an existing one. How can you give us some sense of..., It's Doug. Doug, are you there? I'm here. Can we say the length of the MVC?

To have post class CS.

Now can I do a follow on question on another topic.

The former question on not being able to disclose the cost of the new pipe.

<unk>.

I'm interested in knowing if you can disclose it the length of those empty Cds and I'm, assuming the return on invested capital is going to be much higher than the company norm because you got it.

On an existing right of way, that's you're building of the pipe right next to another one and.

And so an existing months, how can you give us some sensitive.

What type of returns.

The length of those M D CS.

Just beyond without disclosing the costs.

It's Doug.

Doug are you there.

I'm here.

And we say the length of the M D C.

Mike Murray: Yeah, as the press release, I believe, stated, Mike. The NBC, the five-year NBC was, was published, and returns. Is this thing... Are you putting this up at... you know, a very low multiple of either daughter?

As the press release I believe stated Mike.

The N B C. The five year M. D. C was was public.

Sure.

And returns are.

Is this thing.

Putting this up that.

You know a very low multiple of either Dara.

Mike Murray: Can you give us some sense of... The returns on the project, the indigenous... So your comment on right-of-way is correct. We previously purchased that right-of-way. We had two, and we built the LEX-1. This is LEX-2, so there is not, you know, a significant right-of-way cost.

Can you give us some sense of.

The returns on the project.

So your comment on right away is correctly of all we previously purchased that right away.

We had to and we built the Lex one this has legs too. So there is not significant.

Significant right away cost.

We can't disclose.

The return, but I think the important thing here.

Mike Murray: We can't disclose the return. But I think the important thing here about the whole story is that we got an extension of the acreage dedication. There's value to that. There's Ziva Dha from... Obviously, what gets shipped over these five years. But what we're very excited about is... The total capacity is 500,000 barrels, so we have a couple hundred thousand barrels of capacity to sell to other producers. So, ultimately, the return or the rate of return is going to be very attractive. We can't give you a phone number.

Little story.

As we got an extension of the acreage dedication there is value to that.

There is EBITDA from obviously what gets shipped over these five years, but what we're very excited about is the total capacity is 500000 barrels.

So we have.

A couple of hundred thousand barrels.

Apache has to sell to other producers so ultimately the.

You know the return or the.

The rate of return is going to be very attractive.

Can't give you a number.

Mike Murray: Okay, thank you. Thank you. I would now like to turn the call back to Brad Cooper for a closing remark. Well, thanks everyone for your interest in the call today. We've accomplished a lot this last quarter and look forward to talking to you all in June with our year-end results and fiscal 25 budget. Thank you. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Okay.

Thank you.

Thank you.

I would now like to turn the call back to Brad Cooper for closing remarks.

Well thanks, everyone for your interest in the call today, we've accomplished a lot this last quarter and look forward to talking to you all.

In June with our year end results in fiscal 'twenty five budget. Thank you. Thank you.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.