Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• NGL Energy Partners LP (NYSE:NGL) reported consolidated adjusted EBITDA of $147.3 million for the second quarter, driven primarily by the water solutions and crude logistics segments.
• The company successfully repriced and amended its term loan B agreement, reducing interest expenses by approximately $5.25 million per year.
• The Lex Two expansion project was completed on time, with an initial capacity of 200,000 barrels per day, expandable to 500,000 barrels per day, fully underwritten by a minimum volume commitment.
• Water solutions segment saw a 9% increase in fiscal water disposal volumes quarter-over-quarter, with expenses reduced due to lower repairs and maintenance and more efficient chemical use.
• NGL Energy Partners LP (NYSE:NGL) has nearly eliminated future dilution by purchasing 92% of outstanding warrants from class D holders, representing a potential 18% dilution event to common unit holders over the next five years.

Negative Points

• The company slightly reduced its full fiscal year guidance to a range of $640 million to $650 million, a 2 to 4% reduction due to challenges such as warm weather and lower crude oil prices.
• Crude oil logistics adjusted EBITDA decreased from $18.6 million in the first quarter to $17.3 million in the second quarter.
• Liquids logistics adjusted EBITDA was $9.4 million in the second quarter, down from $17.1 million in the prior second quarter.
• The wholesale propane business faces uncertainty due to a warm start to the demand season, impacting projections.
• NGL Energy Partners LP (NYSE:NGL) is pursuing asset sales in the liquids logistics segment and smaller asset sales in crude oil logistics, indicating potential divestment challenges.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with NGL.

Q: How are your conversations going with customers regarding the outlook for calendar 2025? A: (Doug, Water Solutions) The Delaware Basin continues to provide opportunities to increase volumes. We are maximizing capacity on the L2 pipeline and creating new strategies for demand in areas with less capacity. In the DJ Basin, we are adding new contracted volumes and amending existing commitments. In the Eagle Ford, we are increasing volumes with new producers. Across all three basins, we are actively contracting new volumes for 2025 and beyond.

Q: Can you provide the latest on your expectations for water EBITDA and total CapEx for fiscal '25? A: (Mike Krile, CEO) The water guide of $550 to $560 million is still intact. Total capital expenditure remains unchanged from earlier in the year at $210 million.

Q: Can you provide more details on what triggered the transaction to purchase warrants now and your plans for the remaining warrants? A: (Brad Cooper, CFO) The opportunity arose when EIG sold down their class D position, making the warrants available. We worked an arrangement to take out those warrants. We have contacted the holder of the remaining 2 million warrants and offered to repurchase them at the same price, awaiting their response.

Q: What is the strategic importance of eliminating the warrants? A: (Mike Krile, CEO) Eliminating the warrants is part of our long-term strategy to create value for common unit holders. By removing potential dilution, we are strengthening our balance sheet and focusing on long-term value creation through asset quality improvement, increasing contracted revenues, and repurchasing equity.

Q: What are your strategic priorities moving forward? A: (Mike Krile, CEO) Our strategic priorities include pursuing asset sales in the liquid logistics segment, signing additional producers on Grand Mesa for crude oil volume increase, growing our water solutions segment, and reducing leverage while buying back equity. We aim to create long-term value by improving asset quality and increasing long-term contracted revenues.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.