NGL Energy Partners LP Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Entered into a long-term acreage dedication deal with Prairie Operating for water disposal and crude oil gathering/shipment on Grand Mesa, with additional acreage dedication agreements; Prairie's acquisition of Bayswater provides upside to volume projections.
• Signed purchase and sale agreements to sell 17 natural gas liquids terminals and an additional terminal in Green Bay, Wisconsin, with total proceeds ~$95 million, closing by March 31.
• Wound down majority of biodiesel marketing business, reducing average annual working capital needs by $30 million to $40 million; elimination of wholesale propane business reduced average annual working capital by $60 million to $70 million.
• LEX II project commenced operations in October and is performing as expected.
• Purchased 92% of outstanding warrants for $6.9 million, eliminating potential future dilution to LP unitholders.
• Sold 143 railcars with proceeds to be deployed to the balance sheet, projecting undrawn ABL balance at March 31st.

Segment Performance

• Water Solutions: Adjusted EBITDA was $132.7 million in the third quarter of fiscal ‘25 compared to $121.3 million in the prior year's third quarter. Physical water disposal volumes were 2.62 million barrels per day in the third quarter of fiscal ‘25 versus 2.38 million barrels per day in the prior year's third quarter. Total volumes paid to dispose of (including deficiency volumes) were 2.91 million barrels per day in the third quarter of fiscal ‘25 versus 2.6 million barrels per day in the prior year's third quarter. Operating expenses per produced barrel processed decreased to $0.21 in the quarter ended December 31, 2024, from $0.25 in the comparative quarter last year.
• Crude Oil Logistics: Adjusted EBITDA was $17.4 million in the third quarter of fiscal ‘25 compared to $17 million in the prior year's third quarter. Fiscal volumes on Grand Mesa averaged approximately 61,000 barrels per day in the third quarter of fiscal ‘25 compared to 70,000 barrels per day in the quarter ended December 31, 2023.
• Liquids Logistics: Adjusted EBITDA was $8.2 million in the third quarter compared to $26.3 million in the prior third quarter. The winding down of biodiesel significantly impacted the quarter with negative adjusted EBITDA of $12.1 million. Excluding the impact of biodiesel, the remaining businesses within Liquids Logistics generated $20.3 million for the quarter.

Guidance

• Full year EBITDA is guided to $620 million, reflecting additional weakness in the liquid segment.
• Optimistic about strong results from the wholesale propane division in the fiscal fourth quarter due to cold weather experienced in January and expected to continue through February.

Risks

• Performance below expectations in certain Liquids Logistics businesses and declining volumes on Grand Mesa crude oil pipeline.
• Seasonality in liquids businesses complicating quarterly earnings prediction, further complicated by warm weather.
• Potential impact of market conditions on the performance of non-core asset sales and working capital reduction plans.

Question and Answer

• Q: How should we think about the annual run rate EBITDA of your remaining assets and Liquids Logistics following these transactions?

A: Historically, that segment's EBITDA was 15% to 20% of total EBITDA, but it's too early to give exact numbers as we're still evaluating additional opportunities.

• Q: How should we think about the growth trajectory associated with the announcements from this quarter to achieve the 100,000 barrel mark on Grand Mesa?

A: Wait for fiscal ‘26 guidance to quantify, but volume increase is expected to be 50%.

• Q: Regarding the undrawn revolver balance and Series D preferreds redemption?

A: Proceeds from asset sales will be used to pay down the ABL, and we plan to redeem Series D preferreds after further leverage reduction.

• Q: What assets are left in the Liquids Logistics business now post these divestitures?

A: Residual assets include Ambassador propane pipeline, Chesapeake butane export facility, Port Hudson, and West Point terminal.

• Q: Comment on the relative profitability on the volumes related to LEX II compared to previously existing assets?

A: LEX II is performing as expected, but no additional commentary on contracts at this time.

• Q: Thoughts on the seasonality of logistics volumes?

A: Slowdown over holidays, but producers stayed busy in 2023, flipped back in 2024, with wells coming online in early 2024 affecting volumes.