Q4 2025 NGL Energy Partners LP Earnings Call
Greetings and welcome to the NGL Energy partners for Q25 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation, but he wants you to require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Speaker Change: I will now turn the conference over to your host Bradley Cooper CFO you may begin.
Bradley 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.
Bradley Cooper: His 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.
Bradley Cooper: Before I start discussing our fourth quarter and full year results I would like to thank the NGL employees for executing on our strategic initiatives and executing on the noncore asset sales that have positioned the partnership quite well heading into fiscal 2026.
Bradley Cooper: As we announced in the May 5th press release, we closed on the sale of the <unk> natural gas liquids terminals, including Green Bay.
Bradley Cooper: In addition to closing these previously announced asset sales, we monetize our rack marketing refined products business are limestone ranch ownership in most of our crude oil railcar fleet the.
Bradley Cooper: The total asset sale proceeds inclusive of working capital or monetize for a double digit multiples.
Bradley Cooper: Also we completed the full wind down of the biodiesel business.
Bradley Cooper: Leading our final deliveries in the fiscal fourth quarter.
Bradley Cooper: These noncore asset sales will allow us to focus on our core assets. Additionally, these asset sales reduce our volatility and seasonality of our adjusted EBITDA.
Bradley Cooper: The wind down and divesting of these businesses eliminates on average $75 million of working capital.
Bradley Cooper: The peak over $100 million of working capital based on the prior 12 months of activity.
Bradley Cooper: The elimination of this working capital and earnings volatility will allow us to be less leveraged as we continue to further address our capital structure and specifically the class B preferred units.
Bradley Cooper: Yeah.
Bradley Cooper: The proceeds from these sales have allowed us to pay off the entirety of the outstanding indebtedness on our ABL.
Bradley Cooper: Also we purchased 20000 units of the class D preferreds in the open market at a discount.
Bradley Cooper: As discussed on previous earnings calls, we will continue to rightsize the portfolio and organization and we'll look for opportunities to further reduce the asset footprint within the liquids logistics segment.
Bradley Cooper: Let's get into the quarterly results consolidated adjusted EBITDA from continuing continuing operations for the quarter came in at $176 $8 million in the fourth quarter versus 147 9 million the prior year fourth quarter.
Bradley Cooper: Approximately 20% higher than the prior fourth quarter.
Bradley Cooper: The increase was primarily driven by the performance of our water solutions business segment.
Bradley Cooper: Our full year adjusted EBITDA from continuing operations was $622 $9 million, which exceeds our previous guidance of $620 million.
Bradley Cooper: Water solutions adjusted EBITDA was $154 9 million in the fourth quarter was $123 4 million in the prior fourth quarter.
Bradley Cooper: Physical water disposal volumes were 273 million barrels per day in the fourth quarter.
Bradley Cooper: Versus 2.3 to three 9 million barrels per day in the prior year fourth quarter.
Bradley Cooper: Total volumes, we were paid to dispose that includes deficiency volumes were 2.89 million barrels per day in the fourth quarter versus $2 6 million barrels per day in the prior year fourth quarter.
Bradley Cooper: So total volumes, we would pay to dispose of are up 11% fourth quarter of fiscal 2025 over fourth quarter of fiscal 2024.
Bradley Cooper: The increased EBITDA in water solutions is due to overall higher disposal revenues from higher disposal volumes as well as higher fees charged for interruptible spot volumes we.
Bradley Cooper: We also received a full quarter of the legacy pipeline contribution that was put into service during our third fiscal quarter.
Bradley Cooper: The water solutions team continues to drive operating expense per barrel lower operating cost per barrel was 22 for fiscal 2025 versus 24 cents per barrel for fiscal 2024.
Bradley Cooper: For the quarter ended March 31, 2025 operating cost per barrel was 23.
Bradley Cooper: The water solutions segment is off to a good start for fiscal 2026 as volumes continue to exceed internal expectations.
Bradley Cooper: With the current market sentiment and oil price uncertainty, we have not seen any drop off in activity from our customers in the core of the basin.
Bradley Cooper: We will continue to monitor activity levels and the impacts of commodity prices and tariffs could have on our water solutions segment.
Bradley Cooper: We are well positioned with 90% of our volumes committed through acreage dedications at M. D. CS recall, 80% of our total volumes are with investment grade Counterparties.
Bradley Cooper: Crude oil logistics adjusted EBITDA was $13 1 million in the fourth quarter of fiscal 2025 versus $15 3 million in the prior year's fourth quarter <unk>.
Bradley Cooper: During the quarter volumes on the Grand Mesa pipeline averaged approximately 56000 barrels per day compared to 67000 barrels per day for the fourth quarter of 2024.
Bradley Cooper: The reduction in EBITDA for the quarter compared to the same quarter from the previous year is predominantly driven by lower volumes on Grand Mesa.
Bradley Cooper: As previously discussed we signed a contract with Prairie operating where NGL crude marketing will shift their production.
Bradley Cooper: We anticipate our first tranche of new volumes on Grand Mesa in early July from this new contract.
Bradley Cooper: Liquids logistics adjusted EBITDA was $17 7 million in the fourth quarter versus $22 2 million in the prior fourth quarter.
Bradley Cooper: Margins were for product sales decreased by about $7 $1 million as butane margins declined due to a weak gasoline blending season.
Bradley Cooper: Propane margins were essentially flat quarter over quarter.
Bradley Cooper: Expenses decreased in the fourth quarter of fiscal 2025 due to reduced compensation.
Bradley Cooper: For fiscal 2026, we are guiding EBITDA of $615 million to $625 million with total capital expenditures of $105 million.
Bradley Cooper: Of the $105 million and totally total capital expenditures 60 million that we spent on growth projects and the water solutions segment.
Bradley Cooper: As I mentioned earlier water disposal volumes are ahead of our internal expectations and we are off to a nice start for fiscal 2026.
Mike: With that I would now like to turn the call over to our CEO Mike <unk>.
Mike: Thanks, Brad and good afternoon, everyone.
Mike: I think many analysts and investors seem to be focused on quarterly results and may overlook the progress that NGL is making.
Mike: I'd like to look back over the last 14 months to review our accomplishments and.
Mike: In February of 'twenty 'twenty, four we began paying off the dividend arrearages on all three classes of our outstanding preferred units and required three months and $475 million to complete this effort such that we are now and have been current on our preferred equity our financial obligations.
Mike: At the same time, we continued to grow our water solutions business, we entered into a five year 200000 barrel per day MVC contract that allowed us to construct the Lex two water pipeline.
Mike: This pipeline was placed into service in November 2024, contributing five months activity to fiscal 'twenty to 'twenty five we now have two large diameter pipelines with total capacity expandable to 500000 barrels per day, taking water east into Andrews County.
Mike: Meanwhile, we continue to grow our water solutions business.
Mike: In the fiscal year 2025, just added we achieved both record water disposal volumes and adjusted EBITDA due.
Mike: Through the first two months of this quarter, we are exceeding as Brad said, the total water disposal volumes projected in our 2026 guidance. So we're off to a good start.
Mike: Strategically we've been streamlining our business over the last couple of years during that time, we have experienced significant volatility and somewhat disappointing results in several of our liquids logistics businesses.
Mike: Very recently, we sold those businesses as well as other noncore assets to raise $270 million, we are becoming more of a water solutions business with approximately 85% of our adjusted EBITDA to be generated by this segment.
Mike: And now for the first time, we have purchased and retired class Z preferred equity.
Mike: This is a significant milestone as it is necessary to achieve our goal of a simplified capital structure and increasing our free cash flow pre.
Mike: Previously, we had purchased and retired over $23 million, Walter warrants, representing common units significantly reducing potential dilution of our common equity in the future.
Mike: Earlier brand provided our adjusted EBITDA guidance for fiscal year 2020 says at first glance, the $620 million midpoint approximates our actual results for fiscal year 2025, and appears to suggest no growth in reality, our guidance makes up for a $20 million decline in skim oil revenues.
Mike: <unk> due to a lower crude price compared to the prior year actual and the reduction of another $20 million of adjusted EBITDA associated with assets say its included in the prior year.
Mike: So going forward is now quite simple, we will continue lowering leverage continuing to improve the capital structure by reducing the highest cost of capital the class D preferreds.
Mike: And increased adjusted EBITDA through growth in our water solutions segment.
Mike: So with that operator, please open up the lines for Q&A.
Speaker Change: Certainly 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 copper.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two 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. Once again. Please press star one if you have a question or comment.
Speaker Change: Our first question comes from Derrick Whitfield with Texas Capital. Please proceed.
Derrick Whitfield: Good afternoon, all and congrats on a strong year end and your progress with the asset sales.
Derrick Whitfield: Mike.
Speaker Change: Where you ended in your commentary.
Speaker Change: Your guidance is quite strong when you think about the headwinds that you guys are overcoming both with asset sales and crude prices with respect to your 2026 guidance could you offer some more color on your expectations by business or maybe speak to some of the operating assumptions for the water and crude logistics segment segments.
Bradley Cooper: Yeah, Brad once you address the guidance on water.
Speaker Change: Yeah, So derik the water guide in that 620 midpoint of what our guidance is implied number of about $560 million.
Speaker Change: And recall of Mikes comments.
Speaker Change: Do have a little bit of a pullback in oil prices or FY 'twenty six relative to what we realized in FY 'twenty five is accounted for.
Speaker Change: Cash of about $20 million of EBITDA, and then we had a little bit less than $10 million in asset sales.
Speaker Change: We won't have the EBITDA stream going forward that we're in FY 'twenty five.
Speaker Change: Terrific and then for my follow up maybe shifting over to water macro. It appears three larger pipeline projects are moving forward based on the water bridge western and <unk> announcements.
Speaker Change: Fundamentals remain tight in the Delaware.
Speaker Change: To your point I mean, we are seeing lower prices and we would expect lower activity at some point.
Speaker Change: Could you guys offer some color around the conversations you're having with customers and if we see opportunities for growth beyond the current announced projects.
Speaker Change: Yes, I think we will have Doug to answer that question. He's on the line what are the three projects in the water bridge.
Speaker Change: The west Western generic.
Speaker Change: Eric is a loss.
Speaker Change: Yeah.
Speaker Change: Hey, Derik.
Speaker Change: Yes, Sir.
Speaker Change: So we've been busy re contracting our closest exploration long term contracts and there are only a couple.
Speaker Change: We have one of those fully executed with a new long extension and then we're in the process of extending.
Speaker Change: Another.
Speaker Change: Our focus has been on our base wedge of business and then when we look at growth.
Speaker Change: We're seeing we've seen growth through our existing agreements and obviously the new Lex two agreement.
Speaker Change: It comes with the growth as well.
Speaker Change: When we look forward to these other options you know we were the first mover on the out of basin with Lex too.
Speaker Change: We have.
Speaker Change: We have in this past year.
Speaker Change: We have firmed up our further out of basin acreage to be able to develop for growth.
Speaker Change: But right now in this fiscal year with while we see no slowdown in volumes.
Speaker Change: Are on forecast and as Mike said, we're a little ahead forecast. So this in this first quarter.
Speaker Change: We're really focused on preparing for the.
Speaker Change: Future growth opportunities with our core customers of which we have had interest.
Speaker Change: Now that interest may be somewhat delayed.
Speaker Change: Until everyone gets a good firm feel on where oil prices land this year.
Speaker Change: But when you bring up these three pipelines I know.
Speaker Change: We've seen what is public on those.
Speaker Change: I will be curious to see if those get off the ground.
Speaker Change: And if those actually develop and are constructed this year based on you know.
Speaker Change: Maybe a little bit of trepidation by the producers to to really grow we have seen movement back to the core acreage.
Speaker Change: That's where our really our large contracts are are focused.
Speaker Change: Are there really good core acreage there in central Lea County, and somewhat into Eddy County.
Speaker Change: But you know when we talk we look at growth, we're looking at opportunities of growth under our current long term contracts, which average almost 10 years.
Speaker Change: On our current long term contracts and the growth within those.
Speaker Change: So that I guess to answer your question on Hey, Theres three pipeline spec the western pipeline is down in loving County.
Speaker Change: I'm really not that's focused on long term, obviously with legacy Anadarko.
Speaker Change: Anadarko oxy water of which that piece of the pie has been with western for a long time now and that really does not impact anything around our business.
Speaker Change: And then if you go to the other two mentioned in Northern Lea County.
Speaker Change: Well I guess, it's TBD to see how much growth is there to support those projects actually getting off the ground in 2025.
Speaker Change: Great color one last if I can only because we've received several inbounds on it.
Speaker Change: Regarding the May 16th Railroad Commission announcement on enhanced guidelines for Permian water disposal.
Speaker Change: What level of impact will this have with your business as you see it today.
Speaker Change: Well Fortunately for US we're always planning out three to five years ahead.
Speaker Change: These these new guidelines are focused on new permits and new permit applications.
Speaker Change: We have almost 30 legacy permits.
Speaker Change: In the Reeves and loving area.
Speaker Change: We still have opportunities there to go drill those permits.
Speaker Change: And then you know.
Speaker Change: As you know we've been focused on really out of out of basin.
Speaker Change: Andrews County.
Speaker Change: Growth, that's really where our future growth will be and we have procured almost 25.
Speaker Change: Pre guidelines.
Speaker Change: A valid permits legacy permits of the 30% to 35000 barrels per day half psi per foot. So.
Speaker Change: So we beat that timeline on any additional obligations within that new notice to operators that came out recently.
Speaker Change: So we really are in a great position for our future growth for the next several years. So to answer your question that really does not impact NGL from a new permit or permit opportunities perspective.
Speaker Change: Great update I'll turn it back to the operator.
Speaker Change: Once again, if you have a question or a comment please indicate so by pressing star one. The next question comes from Tarek Hamid with Jpmorgan. Please proceed.
Speaker Change: Hi, this is never on for Tarek.
Speaker Change: You had mentioned that there was some delay in terms of growth opportunities for people to get a feel where oil prices land and the context for their.
Speaker Change: Their projects are pushed out of fiscal year 'twenty six.
Speaker Change: Much lower could you flex capital spending down I know its already low at just a little above $100 million is there room to go lower or is there.
Speaker Change: Oil prices firm up is there a room for Capex to go higher.
Speaker Change: And we have to grow up or down to 60 or so.
Speaker Change: I'm not sure can you squeeze more out maybe but it's not going to make a difference.
Speaker Change: And I think on the maintenance capital is predominantly water.
Speaker Change: And I think thats probably it.
Speaker Change: A pretty low number already I really don't see us being able to take it down much.
Speaker Change: Yeah definitely understand that.
Speaker Change: Just was looking to see.
Speaker Change: If there isn't an royalty goes lower but it's already a very local lifestyle understandable. Thank you.
Speaker Change: Okay.
Gregg Brody: The next question comes from Gregg Brody with Bank of America. Please proceed.
Gregg Brody: Good morning, guys I'm sorry, good afternoon.
Speaker Change: Okay.
Speaker Change: Could you give the guidance that you've put out there can you help us think about how you think about your low and high range there on volumes.
Speaker Change: What's what drives that variability.
Speaker Change: So definitely in the one of them, having some feedback Greg could you maybe speak a little louder and repeat the question yeah hold on one side.
Greg: Hi can you hear me now.
Greg: Yes. Thank you.
Greg: Better.
Speaker Change: I'm just trying to understand when you think about the water business sort of a low to the high side for this year. How are you thinking about volumes and help us think about how youre coming up with that.
Doug: Doug you want to take that.
Speaker Change: Sure.
Speaker Change: You know as I think everyone has has learned over the last few years.
Speaker Change: With the recycling.
Speaker Change: Coming to be such a large part of the business, which is a real positive.
Speaker Change: The midstream water business is really the backstop to those peaks and then the producers really benefit on the valleys when they get to recycle.
Speaker Change: Their own water. Meanwhile, we're maintaining capacity as a backstop when the flow backs happen.
Speaker Change: So that that has continued.
Speaker Change: As I talked about earlier, you know we have such a good wedge of base water within the portfolio.
Speaker Change: Our swings we might swing 500000 barrels day today.
Speaker Change: <unk> on whether that recycling is hitting or peak or the peaks are hitting us. So.
Speaker Change: That will continue that's a normal part of the business at this point.
Speaker Change: Where we see variation maybe and from a budget perspective is.
Speaker Change: That sometimes.
Speaker Change: We will have forecasted directly from our customers and if several of the customers for some reason push their completions into one quarter to the next we will see those quarterly fluctuations.
Speaker Change: An example is this first fiscal quarter.
Speaker Change: Sorry in April what do we look like through I guess, we're almost through May.
Speaker Change: So we're looking quite above budget for this first quarter on volumes why is that.
Speaker Change: <unk> have been very strong and actually you know, they're outpacing forecast because.
Speaker Change: There really has been a little bit less recycling.
Speaker Change: Based on timing.
Speaker Change: We might come into into July.
Speaker Change: I'll be a little bit under budget, but we have a pretty good band and pretty good understanding of how to forecast that and when those are going to hit but it's a base part of the business, we have very strong wedge.
Speaker Change: Look at our wedge in too.
Speaker Change: $2 5 million barrels a day.
Speaker Change: Very consistently in the portfolio and we've peaked and hit records in this in.
Speaker Change: In this fiscal quarter, you know over $3 million at 313 2 million some days.
Speaker Change: So it's just I guess as part of the business and as our base wedge grows and grows and that really that 500000 barrel per day swing is pretty normal for us.
Speaker Change: Just just based on what the what your what you've heard from your customers and maybe what you've heard on the call. So if they havent communicated with you clearly.
Speaker Change: What do you think that means for volumes next year, just just based on the market today.
Speaker Change: Is it flat is it up slightly up slightly.
Speaker Change: How should we think about it.
Speaker Change: Obviously, I know things can change I'm, just trying to get a sense of how to think about.
Speaker Change: Yeah sure.
Speaker Change: Sure so.
Speaker Change: I know everyone's been asking.
Speaker Change: Whats kind of whats happening and how are we seeing changes we're.
Speaker Change: We're seeing some of the rigs being laid down.
Speaker Change: We have not seen or been informed by our customers that the volumes are changing on the water side. I think everyone can has been hearing that our production will be at least held flat.
Speaker Change: There may not be a lot of growth.
Speaker Change: You know one of the positive things about recycling is when completions slowdown from the growth side that water doesn't go to recycle it goes to the disposal of certain percentage of that Dennis.
Speaker Change: So we.
Speaker Change: We expect.
Speaker Change: We have some growth in this year in our forecast and we expect that to be on we've not heard anything different.
Speaker Change: That's the alternate aspect to the recycling is that there is any one day, there's 20 30 million barrels of water, saying on the surface.
Speaker Change: If there are any completions that are pushed or delayed into the next quarter.
Speaker Change: Quarter next year, you know that water comes off the table in our core businesses disposal and we get the benefit of that in our in our volumes.
Speaker Change: So to answer the question to answer the question as you know we have not been apprised of any volumetric changes from our customers.
Speaker Change: And with their endeavor to hold production at least flat.
Speaker Change: We're still on pace, we're glad to have this be.
Speaker Change: Quite a bit ahead in this first fiscal quarter that obviously helps us throughout the full fiscal year.
Speaker Change: Great and just one more question for you unrelated to your volumes I noticed in the 10-K, you had was part of your.
Speaker Change: Your business strategy, you pointed out continuing to reduce the lines of the last two preferred units and he also mentioned something about reinstating the common unit distribution.
Speaker Change: Taken in the past you've said that's also.
Speaker Change: Also financing growth projects in the past you've said, that's a possibility but you.
Speaker Change: You may look at other things like instead of just focusing on share repurchases.
Speaker Change: Is that still the case or am I reading this to literally to say that now the goal is to come.
Speaker Change: Take the distributions.
Speaker Change: Near term, we don't see common unit distribution, where we're happy to start attacking these classes. So that'll be our focus our focus and at the same time trying to reduce leverage.
Speaker Change: We'd like to get that under four times.
Speaker Change: So.
Speaker Change: But I wouldn't be looking for a distribution increase in the next few quarters now.
Speaker Change: Our reinstatement.
Speaker Change: Gotcha and then in terms of buying back shares is that is that possibility or is that that's now focus on the preferreds.
Speaker Change: Focus on the warrants before.
Speaker Change: Yes, I think Greg I think its class BS and then we'll be opportunistic with the capital structure. There can be some common sprinkled in there but class. These are our priority I think you've heard it in my comments you heard in Mike's comments and Gary and Q&A. That's the next piece of the capital structure, we need to tackle them.
Speaker Change: We'll get after this fiscal year.
Speaker Change: Alright, thanks for the time guys.
Derrick Whitfield: We have 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, we are well positioned heading into fiscal 2026.
Speaker Change: Look forward to catching up with everyone in August during our first quarter call for 2026. Thank you.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.