NGL Energy Partners LP

Good day and thank you for standing by. Welcome to the fourth quarter fiscal year 2021 NGL Energy Partners LP earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded.

May, Will, and similar expressions and statements are intended to identify forward-looking statements. While NGL Energy Partners LP 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 and risks could cause actual results to differ materially from the projections, anticipated results, or other expectations included in the forward-looking statements. Certain of these factors include changes in general economic conditions, including market and macroeconomic disruptions and related governmental responses, the prices of crude oil, natural gas liquids, gasoline, diesel, biodiesel, and energy prices generally, the general level of demand and the availability of supply for crude oil, natural gas liquids, gasoline, diesel, and biodiesel, the level of crude oil and natural gas drilling and production in areas where we have operations and facilities, The effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, and biodiesel The availability and cost of capital and our ability to access certain capital sources And political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation, and sale of crude oil, natural gas, natural gas liquids, gasoline, diesel, or biodiesel, and other refined products Other factors that could impact these forward-looking statements are described in the 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. You should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date hereof, and except as may be required by state and federal securities laws, we undertake 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 distributed cash flow, which management believes are useful in evaluating our financial results. Please see the partnership's earnings releases, investor presentations, annual report on Form 10-K, and quarterly reports on Form 10-Q for more information on our use of non-GAAP measures as well as reconciliations of differences between any non-GAAP measure discussed on this conference call to the most directly comparable GAAP financial measure. This information is also available on our website at www.nglenergypartners.com under the investor relations tab. Thank you for joining us for our fourth quarter and fiscal year-end 2021 earnings call. I will cover our financial results for the year and some of the drivers of those results and then turn the call over to Mike to discuss our initial sustainability report and give our closing remarks. We will then open it up for your questions. We reported a net loss in fiscal 2021 of $637 million, which included the following one-time items. Crude segment goodwill impairment of $238 million and an intangible asset impairment of $146 million. both of which were driven by the extraction bankruptcy and ultimate settlement and were recognized in the fiscal third quarter. Additional long-lived asset impairments in the water segment totaling $84 million recorded in the fiscal fourth quarter related to obsolete and underutilized assets, none of which were in the Delaware Basin. And transaction costs of $103 million related to our refinancing that were required to be expensed and also were recognized in our fiscal fourth quarter. are adjusted EBITDA from continuing operations for the 2021 fiscal year totaled $448 million compared to $589 million in fiscal 2020. The most significant variances include the Grand Mesa volume decline driven by extractions bankruptcy and a decline in DJ Basin production resulting in a $75 million decline in adjusted EBITDA from our crude logistics segment last year. Water volumes declined significantly in the Eagleford and DJ Basin and also declined slightly in the Delaware Basin compared to fiscal 2020. We were able to reduce operating costs per barrel to offset this decline in volumes and actually grew Water Solutions EBITDA by $9 million year-over-year with full-year contributions from Mesquite and Hillstone acquisitions. Demand for natural gas liquids, primarily butane and refined fuels, were severely impacted by the pandemic and drove a decrease of $80 million in adjusted EBITDA on our liquid segment compared to last year, which I'll remind everyone was a record year for this segment. We also saved almost $5 million this year in corporate and other costs compared to the prior year, and that is after incurring approximately $6 million in costs to defend the extraction contract throughout the year. Our fiscal fourth quarter results were impacted by the following. Crude logistics continued to be impacted by lower volumes on Grand Mesa as we settled the extraction bankruptcy in January and did not see volumes return to the pipeline until February. This segment also incurred some financial derivative losses on its inventory position that we expect to benefit from in fiscal 2022. Winter storm Uri resulted in a pretty significant shut-in of volumes in the Delaware Basin for about two weeks, which negatively impacted our water disposal volumes during the period. Additionally, the storm impacted producers' drilling programs and ultimately the increase in volumes we were expecting in the second half of the quarter. We also incurred some incremental operating costs to run generators and keep our system operational through the storm, which increased our operating costs per barrel during the period. The good news is that we are seeing volumes pick back up, including demand for fresh, reuse, and recycle water in the basin through April and May. The winter weather and pattern also impacted our liquid segment as we saw propane prices spike in February, causing a steep backwardation in the propane price curve through March. This price move had a slight negative impact on our net inventory position when considering our financial hedges that offset any benefit we recognized during the polar vortex in February. We managed through the past year and all the challenges it presented, and like many of you, we are looking forward to the upcoming year and the opportunities in front of us. We believe there are a handful of important factors that will drive our earnings for next year and beyond that you should pay a specific attention to as you assess NGL and our performance. First, Delaware basin oil production and completion activity and the associated water will be the largest driver of our performance next year. We are seeing increases in other basins as well, but the Delaware basin is easily the most significant and important. Disposal volumes will continue to be the largest driver, but we are also selling produced water for use and recently started our first large-scale Delaware Basin recycling project in Lee County. Next, DJ Basin production growth will also be important, most notably from the combination of extraction of Bonanza Creek, as our most significant contracts in the crude logistics segment are with those producers and we will be tied to their production volumes on Grand Mesa. Third, a strong recovery in demand for refined products and blending feedstocks, most notably butane, to pre-pandemic levels will be important for our logistics segment to generate incremental cash flow compared to last year. We will also continue to focus on cost reductions across our segments and at the corporate level and minimize capital expenditures to meet our operational needs. These will be the most important metrics for us to maximize our earnings and cash flow and drive deleveraging of the balance sheet. We invested significantly in the years leading up to the pandemic and the commodity price collapse and will be working to maximize the earnings potential of our asset base in fiscal 2022 and beyond. Our liquidity position is much improved from last year, and we have a few years to manage our debt balances and maturities. Our current focus will be on repaying our 2023 notes, which mature in November of 2023 as we earn excess cash flow. We will also evaluate non-core asset sales and other options to reduce indebtedness. We do not have a timeline set out to reinstate preferred or common distributions, but we understand and appreciate the importance of both and will be working diligently to improve the balance sheet and ultimately increase stakeholder value. I'll now turn the call over to Mike to cover our sustainability report and give his thoughts in our closing remarks.

Great. Thanks, Trey. I'd like to provide a few comments on the ESG front. As we mentioned in previous calls, we have been working on gathering data information. in order to give you a picture of some of the things we do every day at NGL from a sustainability perspective. We are excited to share this with you in our inaugural report, which should be posted to our website within the next week. In the meantime, let me give you a couple of high-level thoughts. First of all, we look at our sustainability journey as a tremendous opportunity. As you will see, our assets and capabilities give us a unique position to help improve Air and Water Quality, assist our customers in decreasing the amount of fresh water they use in operations, and enhance the extensive natural habitat we have. When you think of our businesses, particularly our water solutions segment, which includes our extensive ranch holdings, where we owner lease over 200,000 acres of ranch land, it is easy to envision the opportunities to enhance the environment, conserve water resources, improve the land holdings, explore opportunities to sequester carbon and protect wildlife. What is also important to keep in mind is in many cases our efforts and initiatives are done in collaboration with others. We collaborate and partner with communities, not-for-profits, industry partners, and government agencies. We think these partnerships are critical for our success and lead to the most sustainable solutions. You will see a number of examples of this type of outreach in our report. A few specifics included in the report include the following. Through the build-out of our extensive water pipeline system, we have either eliminated or avoided millions of truck miles, positively impacting air quality and roads. In the area of water conservation, we provide recycled and produced water to our customers for use in their operations, thus reducing the need for fresh water. In the last few months, we have provided between 100,000 and 150,000 barrels daily of such water. We are focused on fit-for-purpose water reuse, which is where produced water is treated to a standard appropriate for specific applications, such as non-consumable agriculture or growing plants to sequester carbon. NGL was the first to pledge financial and in-kind support for the New Mexico Produced Water Resource Consortium, committing $1 million to this effort at its outset in 2019. The contribution represents NGL's commitment to science-based decision-making, collaborative industry, academic, and government partnerships, all working towards sustainable and safe wastewater treatment and reuse solutions. The consortium is a collaboration between New Mexico Environmental Department and the New Mexico State University. The consortium is working to advance scientific and technological solutions related to the treatment and reuse of wastewater generated by the industry. Fourth, the land conservation opportunities with respect to our ranches are expanding. We are collaborating with the state and federal land managers, wildlife agencies, and others to improve the habitat for stock grazing, non-game and game wildlife species, as well as increase native grass growth and distribution. Finally, one of the things we are most proud of is the implementation of a program earlier this year that instituted a minimum wage of $20 per hour for every one of our full-time employees. We have always believed that our employees are our most important asset, and this program is a reflection of that.