NGL Energy Partners LP

Good afternoon, ladies and gentlemen, and welcome to the NGL Energy Partners second quarter 2022 earnings call. At this time, all parties are in a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Linda Bridges, CFO at NGL Energy Partners. Ma'am, the floor is yours.

Thank you. Good afternoon, and again, welcome to NGL's second quarter fiscal 2022 earnings call. To start, I'd like to call your attention to our safe harbor language, which can be found towards the end of our partnership earnings release, which was filed after market closed this afternoon. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the Act, I would also like to direct your attention to the management's disclosure and analysis section and the risk factors discussed in the partnership's annual report on Form 10-K, for the year ending March 31, 2021, and in other SEC filings made by the partnership, which are available on our website and on the SEC's website. These, together with the safe harbor statement and the earnings release, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I'm going to start the call with a few brief comments on the partnership's financial results for the quarter, and then I'm going to turn it over to Mike Krimble for additional remarks focused on the operations and the future of the business. Overall, NGL had another very strong quarter in our water solution segment, as it reported adjusted EBITDA of $87.4 million. Processed barrels totaled approximately 1.8 million barrels per day and grew approximately 94,000 barrels per day over the preceding quarter. The majority of this growth was the result of continued demand for our services in the Delaware Basin. However, we've also seen growth in volumes in each of the other basins in which we operate as well. Skim oil sales benefited from higher commodity prices, and those higher commodity prices have encouraged additional drilling and completion activity in our core operating areas, resulting in continued demand for water, whether that be fresh, brackish, recycled, or produced. For the remainder of the fiscal year, we expect to see water volumes increase ratably by 100,000 to 125,000 barrels per day per quarter and anticipate exiting the fiscal year with approximately 2 million barrels per day of processed water volumes. Our crude oil logistics segment reported adjusted EBITDA of $48.8 million, which includes an estimated $15 million of realized gains associated with deferred profits that were embedded in our inventory and hedge book at June 30th. Grand Mesa volumes came in at 80,000 barrels per day, or approximately 3,000 barrels per day higher than the 77,000 barrels per day reported in our first quarter. and margins in the segment were helped by higher crude oil prices as certain contracted rates with producers increased as NYMEX prices increased. DJ Basin production from our core producer customers as well as crude oil prices will drive operating results for the remainder of fiscal 2022. Our liquid segment reported adjusted EBITDA of $18.5 million, which was primarily driven by results in our butane business as increases in demand for exports and tighter supply markets have benefited product margins. Our propane business had a slower start to the year as a result of backwardation in the propane market and decreased demand. However, this segment should see financial gains coming back in the third fiscal quarter as the business is well hedged and we're beginning to see product listings increase. It's important to remember this is a seasonal business that generates most of its cash flow during the butane blending and propane heating season, which run from the fall through the winter, and assuming normal heating degree days, this business should be in line with expectations for the year. Putting it all together, total adjusted EBITDA for the quarter totaled 146.3 million, and year-to-date adjusted EBITDA is 237.4 million. Funded capital expenditures for the quarter totaled $31 million and $79 million year-to-date. As previously mentioned, our capital expenditures were weighted towards the first half of the fiscal year, and we expect CapEx for the full fiscal year to be approximately $115 million. Total debt increased by approximately $45 million as working capital continued to increase through the quarter due to seasonal inventory builds and increasing commodity prices. The increase in working capital was partially offset by free cash flow generated during the period. We've been consistent in our message that we expect to generate significant excess cash flow during the second half of the fiscal year as we've completed the majority of our capital projects, begin to liquidate inventories, and continue to perform operationally, and that the excess cash flow generated will be used to decrease absolute debt and improve leverage. This plan has not changed and remains our top priority. With that, I'm gonna turn it over to Mike who has some remarks he'd like to share.

Thank you, Linda. Good afternoon and thanks for joining us today. Sit back and relax as we tell you the NGL story. As you know, we have our three business segments and our leaders of each segment are with us today to comment and answer questions as we go along. And we're going to provide new information covering fiscal 2022 expectations fiscal 2023 and 2024 projections, and then our debt and distribution strategy. And of course, all my comments assume the current energy environment. So let's begin with fiscal 2022. The big story is our water solution segment. Volumes are increasing about 100,000 barrels per day per quarter as previously projected. Q1 volumes, obviously, 1.67 million barrels a day. Q2, 1.76 million. We expect Q3 to approximate 1.9 million barrels a day and Q4 to approach 2 million barrels per day. Margins and expenses per barrel are expected to remain flat, which is positive and makes modeling this segment simply a function of volumes. EBITDA for Q1 was $81.5. For Q2, it was $87.4. Q3 and 4 are expected to average $90 million each. Thus, the entire fiscal year should come in at about $350 million EBITDA. We have significant excess injection capacity in our largest shale plate positions, so water volume increases should be more profitable incrementally. importantly capital expenditures going forward will be below the current fiscal year 115 million we have Doug White who leads our water solutions team I'd like him to discuss recent developments in Reeves and Culbertson counties dedications and recycle reuse Doug you there yes thank you Mike let's start with the update on seismicity as many of you may know