NGL Energy Partners LP

Greetings. Welcome to the NGL Energy Partners second quarter 25 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, 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. You may begin.

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. 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 presentation materials and our other public disclosure materials. Consolidated adjusted EBITDA came at $147.3 million for the second quarter. The consolidated adjusted EBITDA was primarily driven by our water solutions and crude logistics segments. The butane blending season began after the quarter ended and wholesale propane is dependent on winter weather and heating demand, as you are very well aware, and should contribute to the third and fourth quarters results. In early August, under the terms of the Term Loan B agreement, we repriced and amended the SOFR margin from 450 basis points to 375 basis points, which reduces our interest expense by approximately $5.25 million per year. On September 19th, the board of directors of our general partnership declared a quarterly distribution for the preferred class B, C, and Ds that was paid on October 15th. The Lex 2 expansion project with initial capacity of 200,000 barrels per day is expandable to 500,000 barrels per day was placed in service in October on time. As we've mentioned on previous calls, this project is fully underwritten by a minimum volume commitment with an investment grade producer. We are excited to have completed this project as it consumed much of our free cash over the last six months. I want to thank the folks in the field for the great work executing this project in a timely fashion. After the close of the quarter, we have entered into agreements to purchase 92% of the outstanding warrants from the Class V unit holders. These warrants were granted to the Class V preferred holders at the time of their investments back in 2019. The warrants have expiration dates in the summer and fall of 2029, with strike prices from 1356 to 1745. The 92% represents 23,375,000 warrants or roughly 18% of our common units outstanding today. Said differently, we have eliminated a potential 18% dilution event to the common unit holders over the next five years with the purchase of these warrants. Eliminating these warrants has been a component of our long-term strategy. Let's get into the quarterly results for the business units. Water Solutions adjusted EBITDA was 182.9 million in the second quarter, Physical water disposal volumes were 2.68 million barrels per day in the second quarter versus 2.47 million barrels per day in the first quarter of this fiscal year, approximately a 9% increase quarter over quarter. Total volumes we were paid to dispose that includes deficiency volumes were 2.77 million barrels per day in the second quarter versus 2.59 million barrels per day in the first quarter of the year. So total volumes we were paid to dispose of were up approximately 7%. The team continues to find ways to optimize both sides of the margin calculation. Expenses in the water solution segment came in at 22 cents per barrel for the quarter, compared to 24 cents per barrel for the first quarter of this year. The decrease in Q2 is due to lower repairs and maintenance expense, as well as lower chemical expenses, as we're using chemicals more efficiently. Crude oil logistics adjusted EBITDA was 17.3 million in the second quarter of fiscal 25, versus 18.6 million in the first quarter of this year. Crude oil sales averaged approximately 63,000 barrels per day for the quarter, in line with the first quarter of this fiscal year. We continue to remain optimistic on the basin and hope to have some contracting updates by the end of the calendar year. Liquids logistics adjusted EBITDA was 9.4 million in the second quarter versus 17.1 million in the prior second quarter. Our butane blending business is performing above expectations. It's too early in the year to project how wholesale propane business will play out. To date, it's been a warm start to the demand season for propane. The other two businesses within liquids have underperformed versus expectations. With these second quarter results in the books, we are where we expected to be at this time of the year. We are in line with our internal expectations and consolidated budget on a year-to-date basis. With that, I would now like to turn it all over to our CEO, Mike Krimble. Mike?

Thanks, Brad. Good afternoon, everyone. As Brad just mentioned, our first half EBITDA results are in line with our expectations. The second half may have a few challenges, such as warm weather and lower crude oil prices. We are slightly reducing our EBITDA guidance for the full fiscal year to a range of $640 million to $650 million. This is a 2% to 4% reduction, which does not in any way impact our strategy going forward. Strategically, we are, one, pursuing asset sales in the liquids logistics segment, as well as a couple of smaller asset sales in the $15 to $40 million range. In crude oil logistics, we are close to signing up additional producers on Grand Mesa that, if successful, will provide a meaningful crude oil volume increase by the start of the next fiscal year. The water solutions segment continues to be our growth engine currently and in the foreseeable future. We have grown our out-of-basin capacity, offering optionality to our customers, thereby providing a long-term solution for the development of the Delaware Basin. We continue to believe in the growth of the Delaware Basin as producers have approached us with multiple new projects over the next 18 months. We are evaluating and expect to provide solutions for them. Finally, reducing leverage while buying back equity is a priority. We began our common unit buyback program with limited purchases this quarter and have nearly eliminated all future dilution with the warrant purchase agreements that Brad mentioned earlier. The purchase of these warrants marks another milestone in our strategy of creating long-term value to your common unit owners. We are not focused on quarterly results, but are managing the partnership to create long-term value by improving asset quality, increasing long-term contracted revenues, growing our water system, repurchasing equity, and strengthening the balance sheet.