NGL Energy Partners LP

Greetings and welcome to the NGL Energy Partners 1Q 2024 earnings call. At this time, all participants are in a listen-only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO of NGL Energy Partners. Brad, you may begin.

Good afternoon, and thank you to everyone for joining us on the call today. After the market closed today, we issued an earnings release, investor presentation, and filed our 10-Q. Comments today will include plans, forecasts, and estimates that are forward-looking statements under the U.S. securities law. These 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 SEC filing and earnings materials. With that, let's get into the quarterly results. We have continued our momentum from fiscal 2023 into the first quarter of fiscal 2024. Our water solutions business is on pace for another record year of adjusted even odds. and disposal volumes with $123.2 million in adjusted EBITDA for the quarter. We are reaffirming our full-year consolidated adjusted EBITDA guidance of $645 million plus. We are getting more capital efficient by spending less growth capital this year, and we are increasing our monetization guidance by 50%, from $50 million to $75 million, thus increasing our free cash flow for the year. Our strategy to reduce absolute debt and leverage continues. as we purchased 99.3 million of the 2025 unsecured notes early in the quarter and reduced total leverage to 4.4 times at the end of the first quarter. As discussed on our last earnings call, all the free cash flow this fiscal year will go straight to the balance sheet and will allow us to pay off the 2025 unsecured notes no later than March 31st, 2024. Our liquidity remains strong for this time of year. Recall earlier this year, we permanently extended our ABL commitment to $600 million through the life of the ABL. As of 6-30, we had approximately $286 million of liquidity and $180 million of borrowings on the ABL. With our continued strong operational performance and the hard work of the entire company over the last two years, we have line of sight to leverage under four times at the end of fiscal 24. This leverage level will have us positioned for a global refinancing in the first half of calendar 2024. As we have discussed before, there is significant seasonality to our liquids logistics segment, especially in our butane and propane businesses. We've built butane and propane inventories in the first and second fiscal quarters, which draws on working capital of the company during these quarters. Butane blending season starts in our fiscal second quarters, and as those inventories are drawn down, the working capital and margin associated with those sales come back to us in the third and fourth quarters. The propane season is similar to the butane season, with inventory draws typically starting in November, as cooler weather starts in the upper Midwest and Northeast regions of the United States. Propane and butane have benefited this year from lower prices during their inventory builds with attractive spreads. With the current contango in the market, both are positioned for a strong back half of the fiscal year. Sizeable moves in propane and butane prices can shift earnings across our fiscal year. When prices decline over the course of the quarter, earnings are shifted into future quarters due to how we hedge and lock in margins with fixed price contracts. As mentioned on the last earnings call, Mike and I both spoke to the seasonality of our EBITDA stream. It's not as simple as taking the full year guide and dividing by four. Internally, we always saw the first quarter of the year as the softest quarter of the year on a consolidated EBITDA basis. Crude logistics suggested EBITDA was $23.8 million in the first quarter, Grand Mesa volumes averaged 72,000 barrels per day in the first quarter as well. Margins for the quarter were impacted by lower crude prices that resulted in lower contracted rates with certain producers. We also saw lower demand for heavier crude oil grades that resulted in lower volumes on the Grand Mesa pipeline. As I mentioned earlier, Water Solutions is on pace for another record year for adjusted EBITDA and disposal volumes. Water achieved strong adjusted EBITDA of $123.2 million, which equates to approximately 17% growth compared to the same quarter in fiscal 2023. Also, the water team handled approximately 2.46 million barrels per day of produced water volume in the quarter, a 14% increase from the prior year. The average disposal fee in the quarter was 64 cents, a 10% increase versus the prior year. This increase is driven by new contracts we have signed over the past 12 months, interruptible volumes we have contracted, as well as spot volumes that hit our system in the quarter. The water team continues doing a great job holding operating expenses down, averaging 25 cents per barrel in the quarter. For the quarter, skim oil recoveries were in line with our historical averages across the basin we operate in. We did have approximately 53,000 barrels of skim oil from the Eagleford in storage at the end of the quarter. Due to tighter pipeline specifications, which reduced the amount of skim oil we sold during the quarter. Early in the second quarter, we solved the skim oil specification issue and sold half of the stored oil so far and expect to sell the remaining volumes in storage by the end of the second quarter and be back on track selling skim oil production going forward in the Eagleford. With the increasing disposal volumes and higher crude oil prices since June 30th, we are expecting a strong quarter from our water solution segment. I will turn the call over to Mike.

Great. Thanks, Brad. Good afternoon and welcome. As you know, we do not provide quarterly adjusted EBITDA guidance, and these summer months are typically the slower ones for NGL. This is a typical first quarter with adjusted EBITDA approximately $11 million above the prior year's first quarter. As we are only three months into the current fiscal year, it is too early to change guidance. So we are reaffirming our previous full year estimated EBITDA guidance of $645. $645 million plus as you've heard. Note that our water solutions adjusted EBITDA this quarter was 123, which times four quarters is $492 million. This exceeds our current water solutions guidance of $475 million for the full year. If the second quarter is similar or better, we will need to increase our water solutions full year adjusted EBITDA guidance. I think we have Doug White on. Doug, if you're there, do you have any color on water?