NGL Energy Partners LP(NGL) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted EBITDA of $147.7 million for the quarter, which was below expectations [51] - The fiscal 2022 EBITDA range has been adjusted to $550 million to $560 million, aligning with average analyst expectations [13][51] - Capital expenditures for the quarter totaled $26.5 million, with a year-to-date total of $96 million, and guidance for fiscal 2022 has been updated to $125 million to $130 million due to unexpected repairs [51][52] Business Segment Data and Key Metrics Changes - Water Solutions segment reported adjusted EBITDA of $82.7 million, with processed barrels totaling approximately 1.84 million barrels per day, a 30% increase year-over-year [43] - Crude Oil Logistics segment reported adjusted EBITDA of $29.8 million, impacted by backwardation in the crude curve, which negatively affected hedging positions and inventory valuations [47][48] - Liquids segment reported adjusted EBITDA of $48 million, driven by positive results in the butane business and favorable location differentials [49] Market Data and Key Metrics Changes - The company experienced lower water disposal volumes in October and November, leading to a shortfall in expected EBITDA for Water Solutions [8] - The current crude oil price is approximately $90 per barrel, which is $12 above the third quarter pre-transportation price [12] - The company anticipates a 10% increase in Water Solutions EBITDA for fiscal 2023, projecting approximately $32 million EBITDA per month [11] Company Strategy and Development Direction - The company is focusing on repaying all of the 2023 unsecured notes prior to maturity and has repurchased $20 million of these notes during the quarter [52] - Collaboration with XRI for recycling services is aimed at enhancing the efficiency of produced water management without incurring additional capital expenses [30] - The company is augmenting free cash flow through asset sales, having closed on $12 million of sales thus far in fiscal 2022, with an additional $20 million identified for fiscal 2023 [13] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in the quarter's performance but noted expectations for recouping shortfalls in the fourth fiscal quarter due to colder-than-normal temperatures [9] - The management remains optimistic about the Water Solutions segment, expecting to exit the fiscal year with approximately two million barrels a day of processed water volume [44] - The management indicated that the operating environment remains challenging but sees potential for growth in the Water Solutions segment and improved margins in the Liquids segment [50][53] Other Important Information - The company has identified a significant dedication in the Water Solutions segment that is expected to be the largest in its history [75] - The company has approximately 60 additional inventory permits for saltwater disposal, which are laddered to maintain operational capacity [109] - The company is working through the budgeting process for fiscal 2023 and will provide updates in the next earnings call [53] Q&A Session Summary Question: How does the company view induced seismicity issues? - Management views induced seismicity as more of an opportunity than a threat, estimating a potential incremental increase in water processing of 5% to 7% if current rules remain in place [57] Question: What caused the drop in recycled water volumes? - The drop was attributed to producers being disciplined in their operations during the last quarter, but an increase in activity was noted in December [58] Question: What is the outlook for inventory reversal? - The company expects a reversal in inventory levels, with a projected reduction of over $100 million in working capital balances [62] Question: What is the status of the XRI agreement? - The collaboration with XRI is expected to significantly increase recycled water volumes, with a goal of exceeding 100,000 barrels a day [78] Question: What are the plans for asset sales? - The company has identified $20 million in asset sales for this year and is actively working on selling underutilized assets to improve the balance sheet [116]