NGL Energy Partners LP(NGL) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record adjusted EBITDA from continuing operations of $590 million for fiscal year 2020, with a net loss on a GAAP basis due to non-cash impairments [9][31][48] - Total leverage improved from 5.0 times last quarter to 4.86 times as of March 31, 2020, with expectations to remain in the high 4x to low 4x range for the upcoming year [26][32] - Free cash flow is projected to be positive based on the adjusted EBITDA guidance of $600 million for fiscal 2021, with distributable cash flow after interest expense and maintenance capital estimated at approximately $295 million [26][49] Business Line Data and Key Metrics Changes - Crude Oil Logistics segment achieved adjusted EBITDA of approximately $57 million for the quarter and $202 million year-to-date, performing at the high end of guidance [35] - NGL Logistics segment significantly exceeded expectations, with strong performance in both butane blending and wholesale propane business components [10][31] - Water Solutions segment reported adjusted EBITDA of $72 million for the quarter, totaling $232 million year-to-date, with Delaware Basin volumes accounting for nearly 80% of total volumes [37][41] Market Data and Key Metrics Changes - The company averaged 1.7 million barrels per day in water volumes during the fourth quarter, with a high of 1.9 million barrels per day in March [11] - April volumes averaged 1.6 million barrels per day, while May volumes dropped to approximately 1.25 million barrels per day, indicating a potential bottoming out [20] - The company has a significant disposal capacity of 3.4 million barrels in the Delaware Basin, with 535 miles of pipeline in service [13] Company Strategy and Development Direction - The company has completed its transition away from Retail Propane and Refined Products, focusing on Crude Oil Logistics, NGL Logistics, and Water Solutions for future growth [9] - The strategy includes reducing capital expenditures to $50 million annually and maintenance capital to around $50 million, reflecting a focus on efficiency and cost reduction [23][24] - The company aims to maintain a strong diversified asset base to weather market challenges and maximize value over the next decade [28][51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by COVID-19 and the volatility in oil prices, indicating a cautious outlook for the midstream sector [14][58] - The company expects to see a recovery in water volumes as producers resume operations, with a target leverage of 4x remaining consistent [112] - Management expressed optimism about the performance in the second half of fiscal 2021, particularly in the NGL Logistics segment due to expected colder winter conditions [17][45] Other Important Information - The company reduced its common unit distribution to $0.20 per unit for the quarter, a 50% reduction, saving approximately $100 million in cash annually [48] - Cost reduction measures have resulted in over $2 million in cash savings per month, with a nearly 15% reduction in headcount [21][22] - The company has been actively repurchasing unsecured indebtedness at a discount, reducing debt by an additional $24 million [27][34] Q&A Session Summary Question: Expectations for produced water volumes and Poker Lake - Management indicated that volumes are expected to trend upwards as shut-in wells come back online, with Poker Lake still on schedule [55] Question: Plans for dividends and conditions for reinstatement - Management expressed disappointment with the current dividend level and indicated that increasing water volumes and reduced leverage are necessary for reinstating dividends [64][66] Question: Impact of contango on storage strategy - The company has rolled short-term contracts for storage and is monitoring market conditions for potential longer-term contracts [72][74] Question: Liquids segment performance and future expectations - The strong performance in the Liquids segment was attributed to both volume and margin increases, with expectations for a ramp-up in demand in the latter half of the fiscal year [100][101] Question: Completions activity and price levels - Management noted that completions are beginning to pick up in the Delaware Basin, with activity expected to continue at price levels between $35 and $40 [108] Question: Target leverage and Class D preferreds - The target leverage remains at 4x, and Class D preferreds are viewed as equity instruments for leverage calculations [112][114]