NGL Energy Partners LP

Good morning, ladies and gentlemen, and welcome to the Q2 fiscal year 2021 NGL Energy Partners LP earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchtone telephone. This call is being recorded. I would now like to turn the conference over to your host, Mr. Trey Karlovich, CFO. Please go ahead, sir.

Great. Thank you, and good evening, everybody. As a reminder, this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, plan, goal, forecast, intend, could, believe, may, and similar expressions and statements are intended to identify forward-looking statements. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations included in the forward-looking statements. These factors include prices and market demand for natural gas, natural gas liquids, refined products, and crude oil, level of production of crude oil, natural gas liquids, and natural gas, the effect of weather conditions on demand for oil, natural gas, and natural gas liquids, and the ability to successfully identify and consummate growth opportunities and strategic acquisitions at costs that are accreted to financial results, and to successfully integrate and operate assets and businesses that are built or acquired. Other factors that could impact these forward-looking statements are described in risk factors in the partnership's annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise. This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA, and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the partnership earnings releases, investor presentations, and annual and quarterly reports on Form 10-K and Form 10-Q on our website at www.nglenergypartners.com under the Investor Relations tab for more information on our use of non-GAAP measures, as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. I'll now turn the call over to our CEO, Mr. Mike Krimbill. Mike? Thanks, Trey.

Good afternoon and thanks for joining us. Our second fiscal quarter EBITDA is $138 million, as you know, as compared to $123.5 million last year. With respect to our water solutions business, it appears that volumes have bottomed out this quarter. The rigs working on acreage dedicated to NGL customers in the Delaware is increasing, with October volumes averaging about 1.5 million barrels a day. Volumes under the Poker Lake contract began on October 1st and will increase January 1, 2021, so less than 60 days, and each year thereafter through January 1, 2024. We have added additional dedications with a focus on increasing our market share in the Delaware during this downturn, and we've issued numerous press releases announcing those. Reducing operating costs has been a significant priority this year. Even though water volumes have declined, our cost per barrel fell from 38 cents last year to 27 cents per barrel this quarter. As volumes increase, we expect this per barrel cost to fall even further. We have done this through reducing headcount in excess of 25%, consolidating SWDs, and eliminating most diesel power generation. With respect to crude oil logistics, they perform well, led by Grand Mesa, with financial volumes at 123,000 barrels per day. The liquids logistics is performing well in the face of uncertainty. In the first six months or so with COVID, there was a question about how much butane blending would be happening with gasoline demand down so much, but logistics is performing on budget. Regarding the balance sheet, NGL has already built out its Delaware water super system such that CapEx this fiscal year and going forward is reduced to allow us to be free cash flow positive. Even so, we have reduced CapEx below the guidance provided earlier in the year for this fiscal year. This will significantly reduce leverage over time. We did evaluate, again, our common unit distribution situation and determine that we are better served in the short term to reduce debt than pay a yield exceeding 20%. This is not because we are not earning the distribution. Our common unit coverage is about four times, I think it was five times for the quarter, but rather to retain our cash to delever and reduce bank commitments. We are pursuing numerous asset sales and joint venture opportunities to raise capital sooner and again use this to reduce leverage and bank commitments. Trey will address the credit facility extension, but I will comment that we have a good bank group that is under pressure to reduce their energy commitments. We understand that and are working to accelerate the reduction that is naturally occurring from our free cash flow position. So where do we go from here? Very simply, we have transitioned to a simplified business model with three top tier segments, reduced volatility, Lesson Seasonality, and Significantly Cut Working Capital Needs. Our contract profile is greatly improved through long-term medications with strong counterparties. Majority of our CapEx is behind us as we have built our Delaware system, large diameter pipe system. We are long water disposal capacity, so we can take all the produced water producers have to send us. We are set to grow the business without acquisitions or significant CapEx. Second, we are focused on reducing indebtedness, leverage, and bank commitments. Third, we are focused on reducing indebtedness, leverage, and bank commitments. Fourth, reread two and three. And with that, Trey, I'll turn it back to you.