NGL ENERGY PARTNERS LP 2027 Q1 Earnings Call

You may begin. Good afternoon.

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. We are pleased to report a strong start to fiscal 2027 and continued execution on our multi-year strategy of de-leveraging the balance sheet through high-return water growth projects. This positions the partnership to continue to address the Class D preferreds later this fiscal year. During the first quarter, we hit record-produced water volumes, physically disposing of approximately 3.32 million barrels per day during the first quarter, growing 19.6% from the first quarter of fiscal 2026.

The record water volumes also generated record Water Solutions adjusted EBITDA for a single quarter. We are seeing the growth capital spend and the 500,000 barrels per day of producer commitments signed in fiscal 2026 flowing through our fiscal 2027 financials. These results validate the highly accretive investments we made throughout fiscal 2026 and further demonstrate the strength of the long-term customer commitments supporting our business. We believe fiscal 2028 could mirror this fiscal year as we continue to execute on additional growth capital projects in the first half of fiscal 2027. During the quarter, we executed the LEX II Extension project, expanding the current long-haul LEX Pipeline System to 81 miles with a capability to transport approximately 560,000 barrels per day of produced water from Eddy and Lea counties in New Mexico to Andrews County in Texas.

The LEX II Extension is underwritten by a newly executed long-term volume commitment contract that includes increased volume commitments and an additional four-township committed area in Eddy County. The LEX II Extension is expected to be in service by the end of this calendar year. This contract, along with additional volume commitments recently executed, brings our total produced water volume commitments to approximately 1.77 million barrels a day, roughly 53% of our total volumes. Permitted injection capacity increased by approximately 200,000 barrels during the first quarter of fiscal 2027. This brings our total permitted capacity up to 5.62 million barrels per day. With the additional growth projects planned for this fiscal year, we will be adding to this capacity.

We continue to improve the credit profile of our customer base, with over 90% of our produced water delivered from investment-grade counterparties and over 85% of our trailing 12 adjusted EBITDA generated from our Water Solutions segment. We reduced leverage in the first quarter, even with our growth capital spend heavily weighted to the first half of this fiscal year. We expect the delevering trend to continue the remainder of the fiscal year while we manage our growth capital spend and liquidity. With our outperformance this quarter and the confidence we have in our customers' execution, we are raising the fiscal 2027 adjusted EBITDA guidance by $10 million from $715 million-$725 million to the new guidance range of $725 million-$735 million.

Turning to our quarterly results, our consolidated adjusted EBITDA from continuing operations for the quarter came in at $186.2 million versus $143.9 million in the prior first quarter, nearly 30% higher than the prior first quarter. This increase was primarily driven by the performance of our Water Solutions business segment. Water Solutions adjusted EBITDA was $179.9 million in the first quarter versus $142.9 million in the prior first quarter, a 26% increase. For the quarter, Water Solutions generated 91% of the EBITDA for the partnership. Physical water disposal volumes were 3.32 million barrels per day in the first quarter versus 2.77 million barrels per day in the prior year first quarter, a 19.6% increase. Total volumes we were paid to dispose, that includes deficiency volumes, were 3.43 million barrels per day in the first quarter versus 3.06 million barrels per day in the prior year first quarter.

Total volumes we were paid to dispose of were up approximately 12% first quarter of fiscal 2027 over the first quarter of fiscal 2026. The increase in EBITDA is primarily driven by higher disposal volumes from contracted producer customers and skim oil revenue due to significantly higher skim oil volumes. The skim oil volumes are driven by an increase in physical water volumes disposed. We also saw a slight increase to the skim oil percentage, and we benefited from higher crude prices during the quarter on the unhedged skim oil barrels. Operating expenses for the quarter on a per-barrel basis were lower by $0.01 when compared to the same quarter the previous year. For the first quarter, our operating expenses in the Water Solutions segment was $0.21 per barrel. The increase in volume will continue to dilute the fixed cost component of our cost structure over time.

We have continuous conversations with the producers to monitor activity levels and the potential impacts the macro backdrop could have on our Water Solutions segment. Even with the macro volatility, we continue to have a high level of interest in takeaway and disposal capacity and have signed over 200,000 barrels per day in volume commits this quarter alone. Crude Oil Logistics adjusted EBITDA was $8.96 million in the first quarter of fiscal 2027 versus $9.6 million in the prior year's first quarter. During the quarter, volumes on the Grand Mesa Pipeline averaged approximately 74,000 barrels per day, compared to 55,000 barrels per day for the first quarter of 2026. Liquids Logistics adjusted EBITDA was $10.3 million the first quarter versus $2.9 million in the prior first quarter. The largest driver for the increase year-over-year was additional contracted activity through our few remaining butane terminals.

This is adjusted for the previously announced asset sales that closed in the prior year quarter. The primary EBITDA contributor of the Liquids Logistics segment going forward will be our butane blending business. Recall that a majority of that EBITDA from this segment occurs in the back half of the fiscal year. With that, I would now like to turn the call over to our CEO, Mike Kremble.

Thanks, Brad. Well, obviously, this was a very strong quarter, and if it continues, we anticipate further increases in EBITDA guidance. Operationally, we're experiencing 10% annual growth in our Water Solutions business while margins remain steady. We are focused on performing reliably and consistently for our customers, especially during peak flow back periods. Growth CapEx this fiscal year will exceed $200 million. A significant portion of the EBITDA generated will not be recognized until fiscal 2028. Majority of the capital will be spent in our first two quarters. We will see long-term debt relatively flat until the back half of the year, while leverage decreases each quarter. I would like to talk about the Class Ds here in particular.

With respect to these Class Ds outstanding, we have several hundreds of millions of dollars of investment opportunities that are expected to generate a rate of return in excess of the cost of the Class D preferred. Therefore, reducing the Class Ds is not our highest and best use of cash. The holders of this security have an option to put them to us no sooner than January one of 2028. We must prepare for that possibility. Thus, we expect to redeem about 50% of the remaining Class D preferreds this fiscal year and leave the balance outstanding. If they are put to us, they will be easily financed. If they're not put to us, then we can take advantage of these attractive opportunities or further reduce leverage.

I think the key here is it is not necessary to eliminate all the Class D preferreds before reinstating the common unit distribution. Looking forward to the next couple of years, we are positioning NGL to potentially build another large-diameter water pipeline, pursue M&A opportunities, and reinstate the common unit distribution. With that, let's break for questions.