Q3 2025 NGL Energy Partners LP Earnings Call
Speaker Change: Please continue to hold ladies and gentlemen your conference will begin momentarily. Please continue to hold. Thank you
Speaker Change: Greetings. Welcome to the NGL Energy Partners 3Q25 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 press star zero on your telephone keypad.
Speaker Change: Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.
Speaker Change: Thank you. 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.
Speaker Change: These comments are subject to assumptions, risks, and uncertainties that could cause actual results to differ from the forward-looking statements.
Speaker Change: Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.
Speaker Change: Before we start discussing our third quarter results, I would like to update everyone on some of the operational and corporate strategic initiatives that we completed during the third quarter and subsequent to quarter end.
Speaker Change: First, a few quarters ago we mentioned on an earnings call that we had line of sight to a few new customers that would put additional barrels on Grand Mesa, and these new volumes could build our volume up to 100,000 barrels per day of crude oil on the pipeline.
Speaker Change: In November, we entered into a deal with Prairie Operating for a long-term acreage dedication where we will provide water disposal services as well as gather and ship crude oil on Grand Mesa.
This transaction was press released by Prairie on November 18th.
Speaker Change: After the quarter ended, we entered into an additional contract with the producer.
Speaker Change: In addition to these two deals, the recent news regarding Prairie Operating's acquisition of Bayswater, we believe, provides some additional upside to our volume projections for Grand Mesa.
Speaker Change: Second, on February 5th we signed a purchase and sale agreement to sell 17 of our natural gas liquids terminals.
Speaker Change: In late January, we signed an additional agreement to sell one terminal in Green Bay, Wisconsin.
Speaker Change: Total proceeds for both transactions inclusive of working capital is approximately 95 million dollars.
We anticipate closing both transactions by March 31st.
Speaker Change: During the third quarter we also wound down the majority of our biodiesel marketing business.
Speaker Change: I will get into the impacts this decision had on our financials for the quarter, but the elimination of this business permanently reduces our working capital needs by $30-$40 million on average per year.
Speaker Change: With the additional sale of substantially all of the wholesale propane business, we have eliminated a total of $60 to $70 million of working capital on average per year.
Speaker Change: During the peak inventory builds throughout the year, the working capital requirements for these two has been historically as high as $100 million.
Speaker Change: These strategic actions are the next step in our strategy to simplify the asset base, reduce working capital, smooth out the seasonality of Arrivida on free cash flow, and ultimately reduce debt by selling non-core assets at attractive deleveraging multiples.
Speaker Change: Third, the LEX II project commenced operations in October and is performing as expected.
Speaker Change: Fourth, as previously mentioned on November 22nd, we purchased $23,375,000 of the $25,500,000 outstanding warrants for $6.9 million.
Speaker Change: This transaction represented approximately 92% of the outstanding warrants and eliminates the potential future dilution to our LP unit holders.
Speaker Change: Fifth, due to the structural changes in the biodiesel market and our desire to exit the business, we started the process of winding down our biodiesel marketing business by allowing our storage lease and certain rail car leases to expire and closing out the open purchase and sale contracts.
Speaker Change: Other than the rail car and storage leases, this business did not have any other long-lived assets.
Speaker Change: We expect to have all our inventory liquidated by the end of February and to sublease the remaining railcars by March 31, 2025.
Speaker Change: Year-to-date, biodiesel has generated negative adjusted EBITDA of $10.3 million, with negative $12.1 million in adjusted EBITDA in the third quarter.
Speaker Change: And lastly, in January and February, we sold 143 railcars for proceeds of $12.5 million and expect to close on additional railcars before March 31st.
Total proceeds are expected to be approximately $20 million.
Speaker Change: All of the sales proceeds I have mentioned will be deployed to the balance sheet, and we currently project an undrawn ABL balance at March 31st.
Speaker Change: Consolidated adjusted EBITDA for the quarter came in at 147.7 million dollars in the third quarter versus 151.7 the prior year third quarter. As I just mentioned we are winding down our biodiesel business which negatively impacted adjusted EBITDA in the quarter by 12.1 million dollars.
Speaker Change: So, if you exclude the impact of biodiesel, adjusted EBITDA was approximately $160 million for the quarter, or approximately 5% higher than the prior third quarter.
Speaker Change: Water solutions adjusted EBITDA was $132.7 million in the third quarter versus $121.3 million in the prior third quarter.
Speaker Change: Physical water disposal volumes were 2.62 million barrels per day in the third quarter versus 2.38 million barrels per day in the prior third quarter.
Speaker Change: Total volumes we were paid to dispose that includes deficiency volumes were 2.91 million barrels per day in the third quarter versus 2.6 million barrels per day in the prior third quarter.
Speaker Change: So total volumes we were paid to dispose of were up 12% third quarter of fiscal 25 over the third quarter of fiscal 24.
Speaker Change: The team continues to maximize the expense side of the ledger. Operating expenses in the water solutions segment decreased for the quarter ended December 31st, 2024, compared to the quarter ended December 31st, 2023.
Speaker Change: primarily due to lower utility expenses, lower chemical expense, and lower repairs and maintenance expense.
Speaker Change: Operating expense per produced barrel processed was $0.21 for the quarter ended December 31st, 2024, compared to $0.25 in the comparative quarter last year.
Bye bye.
Speaker Change: Crude oil logistics adjusted EBITDA was $17.4 million in the third quarter of Fiscal 25 versus $17 million in the prior year's third quarter.
Speaker Change: Physical volumes on Grand Mesa averaged approximately 61,000 barrels per day compared to 70,000 barrels per day for the quarter ended December 31st, 2023.
Speaker Change: As I discussed earlier, Prairie Operating signed and press-released a long-term dedication in the DJ Basin with the partnership, and we entered into another acreage dedication agreement with a second producer. These are the potential contracts on Grand Mesa we alluded to in prior earnings calls that would get us to 100,000 barrels per day.
Speaker Change: With very little maintenance capital needed for this business segment, the growth in the EBITDA will create a dollar-for-dollar increase in our free cash flow.
Speaker Change: Liquid's logistics adjusted EBITDA was $8.2 million in the third quarter versus $26.3 million in the prior third quarter.
Speaker Change: The winding down of biodiesel significantly impacted the quarter with negative adjusted EBITDA of $12.1 million for the quarter.
Speaker Change: So, excluding the impact of biodiesel, the remaining businesses within liquids logistics generated $20.3 million for the quarter.
Speaker Change: We are optimistic with the cold weather most of the country has experienced in January and that looks to continue through February that we will have strong results from the Wholesale Propane Division to report for the fiscal fourth quarter.
Speaker Change: As for our full year results, we are updating the guide to reflect additional weakness in our liquid segment. For the full year, we are guiding to $620 million of EBITDA.
Speaker Change: With that, I would now like to turn the call over to our CEO, Mike Krimble.
Mike Krimble: Thanks, Brad. Good afternoon, everyone. For several years now, we've experienced performance below expectations in certain of our liquids logistics businesses, as well as declining volumes on Grand Mesa crude oil pipeline.
Mike Krimble: Our results have reflected this volatility, and in addition, our liquids businesses contained a seasonality that made it difficult to project quarterly earnings and was further complicated by warm weather.
Mike Krimble: That is changing going forward as we are now on our way to becoming a water solutions partnership with a crude oil logistics segment.
Mike Krimble: exiting the biodiesel business and selling substantially all of our wholesale propane business will improve the repeatability of our cash flows and reduce the seasonality and volatility of our just-at-IBA dom.
Mike Krimble: With respect to crude oil logistics, we are bouncing off the bottom of our D.J. Basin performance.
Mike Krimble: adding new customers which we expect to significantly enhance the volumes and profitability of Grand Mesa going forward.
Mike Krimble: We continue to work on other non-poor asset sales, which will further reduce indebtedness and leverage. If successful, we expect to announce these in the next few months.
Mike Krimble: Once we have reduced our leverage further, we can begin redemption of our Class D preferred shares.
Mike Krimble: So with that, Operator, please open up the line for Q&A.
Thank you.
Speaker Change: 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 keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 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.
Speaker Change: Once again, please press star 1 if you have a question or a comment.
Speaker Change: The first question comes from Derek Whitfield with Texas Capitol. Please proceed.
Good afternoon all and congrats on your divestiture announcements.
Thanks, Derek.
Speaker Change: Perhaps starting there with your announced NGL terminal and railcar transactions, how should we think about the annual run rate EBITDA of your remaining assets and liquid logistics following these transactions?
Speaker Change: Historically, Derek, that segment's got really four legs of the stool. Wholesale propane, biodiesel, Iraq marketing, our centennial business.
Speaker Change: Between the wind down of bio and the wholesale transaction, it's probably
Speaker Change: 15 to 20 percent of our EBITDA on that business unit.
Historically.
Speaker Change: I'll add to that Brad. I think it's too early for us to give any numbers. We are still looking at some additional opportunities so we don't want to mislead you by giving you a
a number that turns out to be not accurate.
Speaker Change: Understood. Maybe shifting over to the crude oil logistics segment, how should we think about the growth trajectory associated with the announcements from this quarter to really achieve that 100,000 barrel mark you referenced in your prepared remarks?
Speaker Change: You know, I'd say again, we'll probably wait for our fiscal 26.
guidance to really quantify that.
Speaker Change: So, you know, if nothing else, you could take 50% of EBITDA this year and...
Our numbers.
That's great. Thanks for taking my questions.
Speaker Change: Once again, if you have a question or a comment, please press star 1 on your touchtone phone. The next question comes from James Spicer with TD Securities. Please proceed.
Yeah, hi, thanks for taking the question.
Speaker Change: Sounds like if you're projecting an undrawn revolver balance at the end of next quarter, that would imply that the majority of your asset sale proceeds and free cash flow are all going to pay down the ABL balance.
Speaker Change: Just wondering if that's the case, and if so, what metrics are you looking for to hit before you start addressing the principle on the Series D preference?
Speaker Change: Yeah, that's correct. Assuming all the assets are disclosed, it goes straight to the ABL.
Bye. Bye.
I think it's probably just continue deleveraging.
Speaker Change: I don't know if we have a hard, fast line in the sand in terms of where we want to be, but.
You know, the way that our.
Speaker Change: Growth capital projects typically occur when everything lined up for next year.
Speaker Change: But if you take this year as an example, the LEX II spin was in the first half of the year. So assuming there's a repeatable transaction like that, James, I would assume kind of a back half of fiscal 26 in terms of Class D redemption. That's not signaling that we've got another deal lined up. It's really just trying to...
Speaker Change: illustrate if we have a repeat of this year how our free cash flow really flows through the through the partnership.
at this point.
Speaker Change: Four legs of the stool that had hard assets. What's remaining is
Ambassador, so that's the propane pipeline there in Michigan.
Speaker Change: Chesapeake, which is a butane export facility, and then Port Hudson, and West Point, we have a terminal at West Point, Virginia.
So those four residual assets.
Speaker Change: 540 to 550 or something in that range. Just wondering with your updated total guidance what that implies in terms of water.
Speaker Change: But it's not clear to us where we're going to end up, so we we decided not to provide another room.
Any more guidance on water?
Okay, that's it for me. Thanks, guys.
Tarek Hamid: Okay the next question comes from Tarek Hamid with JP Morgan. Please proceed.
Tarek Hamid: Hi, good afternoon. This is Nevin on for Tarek. I was just wondering if you could comment on the relative profitability on the volumes related to LEX II compared to the previous existing assets.
Speaker Change: No, I mean, in my prepared comments, it's performing as expected. That's really all we've.
Speaker Change: Got it. But in terms of additional volumes coming online compared to original, our last one, is there any difference in terms of the contract that was struck?
Speaker Change: Can you repeat the question? It's a little fuzzy here on this side, breaking up.
Speaker Change: Sorry, just looking for whether or not you could provide any commentary on the contracts that were struck for Lex II in terms of pricing and profitability.
Speaker Change: At this time, there's no additional contracts that we've signed up as a result of LEX 2.5, if that's what you're asking.
Got it. Thank you.
Speaker Change: Okay we have a follow-up coming from Derek Whitfield with Texas Capitol. Please proceed.
Derek Whitfield: Good afternoon, guys. Just to clarify the comment on modern logistics volumes, should we be thinking about that more from a seasonal perspective? I mean, it's certainly not surprising to see seasonal capex down across the upstream industry.
Derek Whitfield: I mean, I would think that you would start to see that front loaded in the first half of the year. So that's, I mean, it's just a seasonal factor. Is that the right way to think about it?
Derek Whitfield: Some of my comments on the growth capital, Derek around lights too.
Derek Whitfield: No, more around the volume. So you had a slight decline in logistics, so water logistics volumes in Delaware in Q3 versus Q2.
And I thought the previous question. Yeah, go ahead. Sorry.
I think with the third quarter, we've seen, we saw
Derek Whitfield: A lot of better recycling from some of our larger customers. I don't know if that's seasonal stuff. Are you there? I don't maybe you've got some thoughts on the seasonality of.
Derek Whitfield: of recycling versus the rest of the year and how it lays out in a calendar year.
Derek Whitfield: That began to change in 2023 where we saw the producers stay very busy through the holiday season.
Derek Whitfield: But once again, it's flipped back in 2024, we saw the, and I don't know if it's the calendar situation where there was a, you know, Thanksgiving and Christmas certainly had a lot more.
Derek Whitfield: leaned a lot more towards time off, just in general. But we did see a slowdown compared to prior year because of that. And, you know, can we call it seasonal? Maybe it's more operational.
You know, things are going, certainly in the Delaware.
Derek Whitfield: It's staying very steady, but there was a ramp of recycling this year in that last quarter of the calendar year, and we're already seeing those numbers quickly turn back around in this first calendar quarter of the year, with a lot of wells being brought online.
Terrific, that's what I was expecting.
Derek Whitfield: We've reached the end of the question and answer session and I will now turn the call over to Brad Cooper for closing remarks.
Brad Cooper: Thanks, everyone, for your interest in NGL, and we look forward to catching up with everyone in a couple of months on the Year-End Earnings Call. Thanks, and have a nice week.
Brad Cooper: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.