Good day, ladies and gentlemen, and welcome to the Q1 2017 NGL Energy Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Mr. Trey Karlovich, Chief Financial Officer. You may begin.

Thank you, Becky, and welcome. This conference call includes forward-looking statements and information, while NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements. These factors include the prices and market demand for natural gas, liquids and crude oil, level of production of crude oil and natural gas, the effect of weather conditions on demand for oil, natural gas and gas liquids, the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results and to successfully integrate acquired assets and businesses. Other factors that could impact these forward-looking statements are described in risk factors in the Partnership’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. Please also see the Partnership’s website at www.nglenergypartners.com, under Investor Relations for reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. Good morning. I’ll take a few minutes walking through each of our operating segments and results from our first quarter. I will also highlight our expectations for each of the segments for the rest of our fiscal year. Mike is here, and he and I will answer questions after our prepared remarks. Let’s start with an update of our opportunities and then cover our quarterly results and the primary drivers behind these results. As we have discussed on the last two investor calls, our…

Thank you. [Operator Instructions] And our first question comes from line of Sunil Sibal with Seaport Global Securities. Your line is now open.

Hi. Good morning, guys.

Hi, Sunil. How are you?

I am doing good. A couple of questions for me. First, I think, I missed you comment in terms of what was your covenant compliance leverage ratio for the quarter?

We’re right at 4.0 times.

4.0 times. And then do you expect to trend towards the 3.25 towards the second half of the fiscal year 2017 I guess, right?

We will start to trend towards 3.25, and we would expect to hit that by the end of fiscal year 2018.

Okay, got it. And then in terms of the acquisition opportunities, which you mentioned, it seems like you executed on a couple. With regard to your maintaining guidance, are you assuming certain amount of further acquisitions for that making the guidance or how should we think about that for the remainder of the year?

Our guidance does not include any additional acquisitions. It includes our growth capital guidance of $200 million to $300 million with what we’ve included in the guidance at this point in time. We would be at the higher end of that range.

Okay.

No additional acquisitions or growth capital in excess of our $200 million to $300 million is included in the EBITDA guidance that we’ve provided.

Okay. Thanks for that. And then lastly, these acquisition opportunities, which you mentioned, I was just curious, you know, who are the people you normally selling these assets and then you mentioned about 5x kind of EBITDA targets for those, what kind of visibility you have on the cash flows in terms of contact lens et cetera, if you can just touch upon that?

Yes, this is Mike. The line space is obviously on a Colonial pipeline and so that’s the line wants in allocation all year long. So that’s we value that – when you look historically at about $0.05 a gallon is the value of that. So we bought about 100,000 barrels per cycle and a 5-day cycle, so we paid around $40 million, so that would be a three times or less multiple. And that’s – there’s not a contract there. We have contracts with our customers like the Costco and others, Trey mentioned. But being on allocation that’s what really makes it a long-term asset. On the Retail Propane side, those are thousands and thousands of homeowners. And so, those are very sticky. So, again, we don’t have long-term contracts, but it’s dysfunctional and run out of fuel or priced too high, you’re going to retain all your customers.

Got it.

We like the retail that’s really [indiscernible] utility like and an asset within the MLP. So if we can do more of those we will.

Thanks for that. And just one quick follow-up on your contract with Costco and Kroger’s. So those are kinds of long-term contracts with them.

They’re one-year contracts that’s just pretty much the standard lengths for the Colonial – customers off Colonial plantation. But as I said, when you’re on allocation, there is no more products for a customer in cities. They are very sticky. There is not somewhere else they can go to get a company – no one else can really has product to take them away from us, nor can we take or steal the customer from someone else.

And these have been long-term customers of the company and expect to continue to be.

Okay, got it. Thanks, guys.

Thank you.

And our next question comes from the line of TJ Schultz with RBC Capital Markets. Your line is now open.

Great, thanks. Good morning guys. Just first on Grand Mesa. So any of the recent activity changes there, I think you commented on in the basin. Does any of that change your view on timing to ramp cash flow above that $120 million year one guidance sooner than expected?

The answer is probably no. If it’s very positive you know synergy and PDC of acquired Noble acreage around our Lucerne truck station. So there has been some positive activity, meaning there is going to be rigs drilling that acreage sooner than the Noble would have drilled it. On the flip side though, we’re all waiting like everyone else, I think on the finance accrete situation and to see what the answer is for their issues. Now, we haircut that that contract by 50% when we issued our guidance of $120 million going to $150 million. So, it could be that we’re right on target. It could be better. It could be worse. So net of all that, I think, we’re just being cautious to say no change.

Okay, thanks. That makes sense. On Sawtooth, you talked about some of the rail competition, just timing on when you’d expect some of that to ease out?

Yes. What’s happened there is I think we’re seeing propane production have declined at some of the facilities such as the Zayo [ph] facility that we have to keep dry. So we’re seeing somewhat of a decline in production, but we’re also seeing some of the refiners had ordered brand new high pressure cars that came on this year. So, we’ve seen an increase in cars and a decline in production. So that what we think is going to happen is next year the balance will occur because those that have leased cars, they can get back will return them. So, we’ll right-size the fleet. And so we think it’s a one-year issue and that we will be back on target next year, which is why we’re taking the opportunity to expand that cavern from 1.2 million to 2 million barrels. It’s very cheap to do so. It’s almost like doing the six caverns for a fraction of the cost and then we’d expect to fill it next year.

Okay, thanks. So on Retail Propane, just big picture, it sounds like you do like the nature of that business. Obviously, are you active on looking at more opportunities there that could be executed on this year or sooner rather than later?

Active is a good – is probably the question. We are only looking at things that are for sale in our footprint. So, if it’s more or like – if the sellers – an owner that wants to sell then yes we’ll be active, otherwise we’re not actively calling on all the retailers. We’re not sending out literature to all the retailers and mass mailing, it’s kind of things that you would do if you are really just trying – if you only did Retail Propane. So, we’re active if there’s a seller, but otherwise we’re not. Now, the answer maybe that the net of all that is there has been a little more activity this year and in particular, some really high quality regionals. So, it’s possible we have another acquisition that brings the net EBITDA of $5 million to $10 million range.

Okay. So similar higher quality regionals are active sellers?

Yes.

Okay. And just lastly, just any update now that sometimes passed on your relationship with Oaktree, just conversations there and you kind of mentioned the opportunity to look at new investment potential alongside Oaktree. And that’s it for me. Thanks.

Well, Oaktree is like I’m already married, otherwise, I’d want to marry them, we’d love Oaktree and they are great partners. So we are working with them to see where we can buy an asset that’s got long-term contracts and then do a 50:50 JV. So, I’ll let Trey Karlovich, do you want to say anything?

No, I have to expand on my comment. We have discussed quite a few opportunities. We’ve looked at a few assets together. I think Oaktree and NGL think a lot alike. We are targeting, as Mike mentioned, fee-based assets with long-term contracts, that’s what we’re targeting. Again Oaktree sees that as a great benefit to NGL as well as themselves from a value perspective, especially in this marketplace. So, we’re continuing to look at things and we’re excited about some of the opportunities that we see on the horizon.

And TJ, I think in this capital market environment, we’re seeing improvement in the high yield market, we’re not there yet. The equity price for us is still not very attractive. So, doing a JV and only having [indiscernible] half the money is very attractive. And it develops a drop down story in the future. So, we’re actively looking at assets with Oaktree.

Okay, perfect. Thanks, Mike. Thanks, Trey.

Thanks, TJ.

[Operator Instructions] And our next question comes from the line of Matt Niblack with HITE. Your line is now open.

Hey, thanks for taking the question, and congratulations on the several actions here again in this quarter. So, thank you. Just make sure I understand the guidance. So, it sounds like you’re maintaining the guidance and based on this kind of four to five multiple, these acquisitions you’ve done should add kind of $15 million to $20 million in EBITDA in the back half of the year. And I guess that’s offsetting the weakness that you’re seeing predominantly in the liquids segment. Is that high level the right way to think about this?

I’d say no. We’re not increasing guidance yet due to the acquisitions. But that the base business, we’re seeing some movement that crude could be down, refined products up. So, our guidance for what assets we have at the beginning of the year is the same.

I got it.

We’d anticipate, we should do better, but at this point it’s just the first quarter, so we haven’t raised guidance.

And the acquisition – everything that we’ve completed during this quarter was contemplated and included in our $200 million to $300 million, which is why we gave the range. We weren’t positive that some of those would come to fruition, they ultimately did. We are within our CapEx range of $300 million for the year, which factored into how we gave original $500 million guidance. So anything we do over and above any investments over and above $300 million and that’s what I would look at as adding – as additive to the guidance that we’ve given.

Got it. So toward the high end of that guidance, and so, I guess, they are included at some level, but anything additional you do wouldn’t…

Correct.

Got it. Okay that makes sense. And then a lot of people right now, I think, are worried about this liquids logistics business beyond this railcar issue, particularly as propane in particular gets less tract in the Northeast within Mariner platforms coming on line from Sunoco Logistics and I think that's caused a lot of concern for both you and for Crestwood in the investor community. And I think Crestwood just got this terrible number, which might have probably do the railcars that may be is due to some of that dynamic. So for you guys, does that matter or is your sort of I guess, emphasis, first of all on butane on the one hand then on kind of – almost wellhead to retail logistics and propane on the other does that insulate from some of that dynamic?

No, I think we took really that into account our $500 million tough guidance. So we have the – in the liquids, we have the wholesale propane, which is really presold gallons to the retail propane dealer that doesn’t change at all. That’s just really affected by the weather in quantities and that’s about $30 million of the EBITDA and then Sawtooth were down because the fifth caverns not in service and that’s probably $7 million or $8 million. But on the other side, which is our butane supply business. Last year we did about 55 million in that business and we reduced that in our guidance to 30 million. So we feel very good about the 30 million and have a chance to do – there’s upside there. So we’ve already taken that into account in the numbers we gave you.

Got it, got it, and the dynamic in the butane business is you’re buying those – you’re buying the butane from who and selling it to who?

Several sources will buy it from the refineries in the summer, right. And then just take it back in the winter and then we’re buying it from the fractionators and taking that too refiners as well.

Okay, about how much in that east side the refiner.

I don’t know how much we buy it from refiners versus non-refiners.

Okay, got it. And then – see if I had another question. I think that’s it. Thank you.

Thank you.

And our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Hey, thanks guys. Just one quick question from me that hasn’t been asked, do you want me to understand this royalty, transaction unit for $47.5 million. So, are you basically saying based on strip pricing, it’s basically, a 4 to 5 times multiple payback and then its prices move up over time, it will be a better multiple than that. Is that just the right – is that the right way to think about that?

Yes. So just to give a little color, we were – we negotiated this transaction in March when prices were in the $30 to $35 range. As we noted in our 10-K, we had to record the royalty obligations. This transaction kind of lead-in to that accounting treatment, so when we recorded all of this. We already had an agreement in principle to repurchase those royalties. It was based on a price of about, between $30 and $35 at the time of the acquisition, we used the curve at that time to forecast out, I would say the prices would increase that with definitely lower that multiple. But the transaction we did was – was that approximately 5 times multiple when we completed it.

And Michael, those are both oil and water volume royalty, so you typically may pay a $0.05 or $0.10 a barrel for what’s disposed in 5% or 10% of the crude proceeds, so we bought them both back. So as volumes increase we’ll have a greater savings there as well since that all price related.

Okay, great. Thank you for that.

And our next question comes from the line of Selman Akyol with Stifel. Your line is now open.

Thank you, good morning.

Hi, Selman.

Is it relates to the crude side and backing out this quarter, backing at your guidance for Grand Mesa still implies a pretty good ramp over the remainder of the year. Can you just expand on what you’re seeing and why confident there?

Yes, we are more confident now – what we’re seeing on the Contango side we’ve got the next four months I think all between $0.70 to $0.80 a barrel, we also going to see more in the – as we think the trucking side as Grand Mesa comes online will have most of the barrels will be trucked into Lucerne/Riverside. So, that the margins are still challenged and the volumes of course are dropping on the crude marketing side. So we’re not anticipating a huge increase in margins or volumes other than stuff we’re trucking.

All right, that does it for me. Thanks very much.

Thank you.

[Operator Instructions] And I’m showing no further questions at this – I’m sorry we do have a question from Kim White [ph]. Your line is now open.

Good morning, gentlemen. I just have a quick question about the future dividend, our distribution I should say. If everything goes according to your guidance, do you see management recommending to the Board that you will reinstate the distribution to the original level?

Great question. And I won’t – unfortunately I don’t have short answer, in our Board meeting, actually that came up this is our second quarter we had $0.39, so we have two more quarters and then we would our managements steps are going to recommend an increase in the distribution. So then the question becomes what’s the right number and we look it today. We really think of our distribution not at $1.56, we think of it as and we make our decisions on investing based on $2.50 distribution. So when you see unit price that’s makes the math easy at $16 and if we were to pay $2.56, again, that’s a 16% yield. I think we all agree that paying that kind of yield is nonsense, but the money, a portion of that money is better spent reinvested in the business earning 20% to 25% returns. So we will be recommending an increase. At this point, I can’t tell you how much of an increase but I can tell you we think of it as 250 distribution.

Okay. Thank you very much.

And I’m showing no further questions at this time. I would now like to turn the call back over to Mr. Krimbill for closing remarks.

Well, I just want to thank everyone. And we will keep doing what we’re doing and get that distribution up in a few quarters. All right, thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.