NGL Energy Partners LP

Greetings. Welcome to the NGL Energy Partners 4Q25 earnings 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. Before I start discussing our fourth quarter and full year results, I would like to thank the NGO employees for executing on our strategic initiatives and executing on the non-core asset sales that have positioned the partnership quite well heading into fiscal 2026. As we announced in the May 5th press release, we closed on the sale of the 18 natural gas liquids terminals, including Green Bay. In addition to closing these previously announced asset sales, we monetized our RAC marketing refined products business our limestone ranch ownership, and most of our crude oil rail car fleet. The total asset sale proceeds, inclusive of working capital, were monetized for a double-digit multiple. Also, we completed the full wind-down of the biodiesel business, completing our final deliveries in the fiscal fourth quarter. These non-core asset sales will allow us to focus on our core assets. Additionally, these asset sales reduce our volatility and seasonality of our adjusted EBITDA. The wind down and divesting of these businesses eliminates on average $75 million of working capital and at the peak over $100 million of working capital based on the prior 12 months of activity. The elimination of this working capital and earnings volatility will allow us to be less leveraged as we continue to further address our capital structure and specifically the Class D preferred units. The proceeds from these sales have allowed us to pay off the entirety of the outstanding indebtedness on our ABL. Also, we purchased 20,000 units of the Class D Preferreds in the open market at a discount. As discussed on previous earnings calls, we will continue to right-size the portfolio and organization and will look for opportunities to further reduce the asset footprint within the liquids logistics segment. Let's get into the quarterly results. Consolidated adjusted EBITDA from continuing operations for the quarter came in at $176.8 million in the fourth quarter versus $147.9 million the prior year fourth quarter, or approximately 20% higher than the prior fourth quarter. The increase was primarily driven by the performance of our water solutions business segment. Our full year adjusted EBITDA from continuing operations was $622.9 million, which exceeds our previous guidance of $620 million. Water solutions adjusted EBITDA was $154.9 million in the fourth quarter to $123.4 million in the prior fourth quarter. Physical water disposal volumes were 2.73 million barrels per day in the fourth quarter. versus 2.39 million barrels per day in the prior year fourth quarter. Total volumes we were paid to dispose that includes deficiency volumes were 2.89 million barrels per day in the fourth quarter versus 2.6 million barrels per day in the prior year fourth quarter. So total volumes we were paid to dispose of were up 11% fourth quarter of fiscal 2025 over fourth quarter of fiscal 2024. The increased EBITDA in Water Solutions is due to overall higher disposal revenues from higher disposal volumes as well as higher fees charged for interruptible spot volumes. We also received a full quarter of the LEX II pipeline contribution that was put in service during our third fiscal quarter. The Water Solutions team continues to drive operating expense per barrel lower. Operating cost per barrel was $0.22 for fiscal 2025 versus $0.24 per barrel for fiscal 2024. For the quarter ended March 31, 2025, operating cost per barrel was $0.23. The water solution segment is off to a good start for fiscal 2026 as volumes continue to exceed internal expectations. With the current market sentiment and oil price uncertainty, we have not seen any drop off in activity from our customers in the core of the basin. We will continue to monitor activity levels and the impacts that commodity prices and tariffs could have on our water solution segment. We are well positioned with 90% of our volumes committed through acreage dedications and MVCs. Recall 80% of our total volumes are with investment grade counterparties. Crude oil logistics adjusted EBITDA was $13.1 million in the fourth quarter of fiscal 2025 versus $15.3 million in the prior year's fourth quarter. During the quarter, volumes on the Grand Mesa pipeline averaged approximately 56,000 barrels per day compared to 67,000 barrels per day for the fourth quarter of 2024. The reduction in EBITDA for the quarter compared to the same quarter from the previous year is predominantly driven by lower volumes on Grand Mesa. As previously discussed, we signed a contract with Prairie Operating where NGL Crude Marketing will ship their production. We anticipate our first tranche of new volumes on Grand Mesa in early July from this new contract. Liquids logistics adjusted EBITDA was $17.7 million in the fourth quarter versus $22.2 million in the prior fourth quarter. Margins for product sales decreased by about $7.1 million as butane margins declined due to a weak gasoline blending season. Propane margins were essentially flat quarter over quarter. Expenses decreased in the fourth quarter of fiscal 2025 due to reduced compensation. For fiscal 2026, we are guiding EBITDA of $615 to $625 million, with total capital expenditures of $105 million. Of the $105 million in total capital expenditures, $60 million will be spent on growth projects in the water solution segment. As I mentioned earlier, water disposal volumes are ahead of our internal expectations, and we are off to a nice start for fiscal 2026. With that, I would now like to turn the call over to our CEO, Mike Krimble.

Thanks, Brad. Good afternoon, everyone. I think many analysts and investors seem to be focused on quarterly results and may overlook the progress that NGL is making. I'd like to look back over the last 14 months to review our accomplishments. In February 2024, we began paying off the dividend arrearages on all three classes of our outstanding preferred units. It required three months and $475 million to complete this effort, such that we are now and have been current on our preferred equity financial obligations. At the same time, we continued to grow our water solutions business. We entered into a five-year, 200,000-barrel per-day MVC contract that allowed us to construct the LEX II water pipeline. This pipeline was placed into service in November of 2024, contributing five months activity to fiscal 2025. We now have two large diameter pipelines with total capacity expandable to 500,000 barrels per day, taking water east into Andrews County. Meanwhile, we continue to grow our water solutions business. In the fiscal year 2025 just ended, we achieved both record water disposal volumes and adjusted EBITDA. Through the first two months of this quarter, we are exceeding, as Brad said, the total water disposal volumes projected in our 2026 guidance. So we're off to a good start. Strategically, we have been streamlining our business over the last couple of years. During that time, we have experienced significant volatility and somewhat disappointing results in several of our liquid logistics businesses. Very recently, we sold those businesses as well as other non-core assets to raise $270 million. We are becoming more of a water solutions business with approximately 85% of our adjusted EBITDA to be generated by this segment. And now, for the first time, we have purchased a retired Class D preferred equity. This is a significant milestone as it is necessary to achieve our goal of a simplified capital structure and increasing our free cash flow. Previously, we had purchased and retired over 23 million long-term warrants representing common units, significantly reducing potential dilution of our common equity in the future. Earlier, Brad provided our adjusted EBITDA guidance for fiscal year 2026. At first glance, the 620 million midpoint approximates our actual results for fiscal year 2025. and appears to suggest no growth. In reality, our guidance makes up for a $20 million decline in skim oil revenues due to a lower crude price compared to the prior year actual and the reduction of another $20 million in adjusted EBITDA associated with asset sales included in the prior year action. So going forward is now quite simple. We will continue lowering leverage, continue to improve the capital structure by reducing the highest cost of capital, the Class D preferreds, and increased adjusted EBITDA through growth in our water solution. So with that, operator, please open up the line for Q&A.